ENGLISH COURT GRANTS ANTI-SUIT INJUNCTION TO RESTRAIN BRAZILIAN PROCEEDINGS PURSUED IN BREACH OF UNDERTAKING TO ARBITRATE

In the recent case of Daiichi Chuo Kisen Kaisha v Chubb Seguros Brasil [2020] EWHC 1223 (Comm) (available here) the English High Court granted an anti-suit injunction to compel a claimant to discontinue Brazilian court proceedings which it had pursued in breach of an undertaking not to pursue the relevant contractual claim otherwise than through arbitration in England.

Faced with the threat by one of the parties of an anti-suit injunction application in England, the claimant in the Brazilian proceedings had given an undertaking not to pursue any contractual claims in the Brazilian courts. It applied to amend those claims to pursue non-contractual rights only, but that amendment was opposed by the defendants and ultimately rejected by the Brazilian courts.

In the following months, the parties engaged in settlement discussions and sought to stay the Brazilian proceedings which were not actively pursued by the claimant. However, some nine months after giving the undertaking, the claimant resumed its active pursuit of the Brazilian proceedings which meant advancing contractual claims in breach of the undertaking.

The claimant in the Brazilian litigation argued that the applicant had waited too long to seek an anti-suit injunction and that the Brazilian proceedings were too far advanced. The English court disagreed, and held that the delay in bringing the application was reasonable (the applicant having acted in reliance on the undertaking) and that the Brazilian proceedings were not too far advanced to preclude an anti-suit injunction.

The case provides useful guidance on the factors that an English court will take into account when considering whether to grant an anti-suit injunction, particularly when the application has not been brought immediately and the foreign proceedings have progressed. The case also serves as a reminder of the importance of acting promptly when faced with foreign proceedings in breach of an arbitration agreement, and the difficulties that can arise if there is a delay in making an application.

Background facts

The underlying dispute arose from a vessel being involved in a collision, which was said to have caused damage to its cargo. The cargo interests, including the Brazilian insurer Chubb Seguros Brasil (“Chubb”), commenced arbitration in London against the registered owner of the vessel under the bills of lading, which incorporated an arbitration clause.

Chubb subsequently commenced proceedings in the Brazilian court against the vessel’s manager, Mizuho, the vessel’s charterer, Daiichi Chuo Kisen Kaisha (“Daiichi”), and the vessel’s sub-charterer, Noble Resources, in respect of losses arising from cargo damage and salvage expenses.

On the basis that the bills of lading incorporated a London arbitration clause, in October 2017, Mizuho had sought and obtained an anti-suit injunction from the English court to restrain Chubb from pursuing any contractual claim against it in the Brazilian proceedings. Chubb indicated that it intended to amend its claim in the Brazilian proceedings to pursue only non-contractual tortious claims, and the terms of the anti-suit injunction allowed it to do so.

In November 2017, Daiichi notified Chubb that it intended to seek an anti-suit injunction on the same basis as Mizuho, unless Chubb provided an undertaking, on materially the same terms as the order on Mizuho’s application, that Chubb would not pursue contractual claims against Daiichi in the Brazilian proceedings. Chubb indicated that it wished to avoid an injunction hearing in the English court in circumstances where it intended only to pursue non-contractual claims in Brazil. Chubb therefore provided a written undertaking to Daiichi in December 2017 to the effect that it would not pursue any contractual claims against Daiichi or Noble Resources in the Brazilian proceedings and would not pursue its contractual claims otherwise than by arbitration in London (the “Undertaking”). The Undertaking was expressly governed by English law and subject to the exclusive jurisdiction of the English courts.

The Undertaking did not require Chubb to discontinue the Brazilian proceedings. It remained open to Chubb to apply to amend its claim in the Brazilian proceedings so as to pursue non-contractual claims, and it remained open to Daiichi to oppose such an amendment.

Chubb applied to the Brazilian court to amend its claim to pursue non-contractual claims. That application went as far as the Brazilian Superior Court of Justice, but was ultimately and finally rejected in June 2019. From that point on, the only claim which could be pursued by Chubb in the Brazilian proceedings was its original contractual claim (the pursuit of which was barred by Mizuho’s anti-suit injunction and the Undertaking).

Over the following months, the parties held settlement discussions and jointly applied to stay the Brazilian proceedings (without prejudice to their respective rights). The parties also jointly applied to extend the deadlines for Daiichi, Mizuho and Noble Resources to file their jurisdictional objections and any substantive defence. Neither side sought actively to pursue the Brazilian court proceedings.

Following the expiry of the stay, and pursuant to the extended deadline, the three defendants filed their jurisdictional objections in September 2019. Noble Resources also filed a substantive defence, in the event that the jurisdictional objection failed. Daiichi’s subsequent explanation for these filings is that that they were made out of an abundance of caution, to minimise the risk of the Brazilian court progressing to a decision on jurisdiction or the merits.

Between October 2019 and February 2020, the parties made further applications to the Brazilian court to stay the proceedings and held further without prejudice discussions.

In March 2020, Chubb discontinued its claim against Mizuho in the Brazilian proceedings, but re-commenced its court claims against Daiichi and Noble Resources. This was the first time since June 2019 that Chubb had actively pursued the Brazilian proceedings.

Daiichi’s application for anti-suit injunction

Daiichi applied to the English court for an anti-suit injunction to enforce the terms of the Undertaking. It sought orders that Chubb discontinue the Brazilian proceedings against Daiichi and Noble Resources. The reason for seeking a mandatory order that Chubb discontinue the proceedings (rather than merely cease pursuing them) was said to be the risk that the Brazilian court would proceed to judgment without further action by the parties.

Chubb opposed the application on the basis that Daiichi had waited too long in applying to the English court. It argued that Chubb had been in breach of the Undertaking since June 2019 (when permission to amend its claim to pursue non-contractual claims was rejected), which was when Daiichi should have applied for an anti-suit injunction. Chubb argued that by filing objections to jurisdiction (and in the case of Noble Resources, a defence on the merits), Daiichi and Noble Resources had submitted to the Brazilian court’s jurisdiction. Chubb further argued that the Brazilian proceedings were now at an advanced stage and the Brazilian court was poised to issue its judgment. Granting an anti-suit injunction would effectively “snatch the pen from the judge’s hand” and be contrary to the principle of comity.

Court’s decision

The Court considered the principles to be applied when considering whether to grant an anti-suit injunction, particularly when it is resisted on the ground of delay:

• The English court will ordinarily exercise its discretion to grant an anti-suit injunction to restrain a party from commencing or continuing with foreign proceedings in breach of an agreement to arbitrate in England, unless the respondent can show strong or good reasons why the injunction should not be granted.
• If a prohibitory injunction may not be enough to ensure that the injunction is practically effective (e.g. where the foreign action has a life of its own), a mandatory injunction requiring the respondent to discontinue the foreign proceedings may be granted in an appropriate case.
• Applications for anti-suit injunctions should be made promptly and before the foreign proceedings are too far advanced. A failure to seek relief promptly can of itself be a strong reason not to grant an anti-suit injunction.
• An application can in principle be made at any point in the life of the foreign proceedings. The fact that the foreign court may have ruled in favour of its own jurisdiction is not per se a bar to an anti-suit injunction. However, the longer an action continues without any attempt to restrain it, the less likely an English court is to grant an injunction, and considerations of comity have greater force.
• There is no rule as to what will constitute excessive delay in absolute terms. The court will need to assess all the facts of the particular case.

Applying these principles, the court held that Daiichi was entitled to an anti-suit injunction for the following reasons:

• From June 2019 until March 2020, Chubb was actively cooperating with Daiichi to defer any further substantive proceedings in Brazil. Daiichi could reasonably have taken the view that Chubb was neither breaching nor threatening to breach the Undertaking.
• Equally, during that period, Daiichi could reasonably take the view that it would be unnecessary and wasteful to seek a mandatory anti-suit injunction, particularly in circumstances where Chubb had already provided the Undertaking.
• Daiichi and Noble Resources were not, in any substantive sense, actively engaging in the proceedings in Brazil, but rather, with Chubb’s express and active support, seeking to defer them. Such positive steps as were taken (e.g. filing jurisdictional objections) were taken only out of necessity, or on a precautionary basis.
• Although the Brazilian proceedings were advanced, the Brazilian court had not yet assumed jurisdiction over any of the defendants.
• Such time and resources as the Brazilian court had expended on the case would have related to the parties’ joint applications for a stay and/or procedural deferral, as opposed to the substantive merits of the claim.
• Although there was a risk of a decision on the merits in the near future, this remained unclear. It could not be said that the Brazilian court was poised to pass judgment on the merits.

In circumstances where there was a risk that the Brazilian court would made a decision without further action by Chubb, the court ordered that Chubb take positive steps to discontinue the Brazilian proceedings against Daiichi and Noble Resources.

Although Noble Resources was not a party to the injunction application, the Undertaking given by Chubb to Daiichi included a promise not to pursue contractual claims against Noble Resources in the Brazilian proceedings. Noble Resources did not object to the injunction and there was a risk that, if Noble Resources were found liable in the Brazilian proceedings, it might attempt to pass its liability “up the chain” to Daiichi. It was therefore appropriate that the scope of the injunction extend to Chubb’s claim against Noble Resources as well.

Comment

This case, as with all such cases, was ultimately decided on its facts, which were complex. However, in analysing those facts, the court (Mr Justice Henshaw) provides useful guidance on the factors that the English court will consider when deciding whether to grant an anti-suit injunction to restrain foreign proceedings. The court must strike a balance between, on the one hand, the applicant’s interest in having the dispute determined in accordance with the arbitration agreement and, on the other, the prejudice that would be caused in terms of wasted time and resources in the foreign proceedings, as well as the principle of comity towards foreign courts. An important factor in this exercise will be the extent and reasonableness of any delay by the applicant in applying for an injunction.

The case once again highlights the importance of acting quickly if foreign proceedings are commenced (or threatened) in breach of an arbitration agreement. Parties faced with actual or threatened breaches of arbitration agreements should also consider carefully whether measures which fall short of an injunction (such as an undertaking) adequately protect their position.

For more information, please contact Nicholas Peacock, Partner, Aaron McDonald, Senior Associate, or your usual Herbert Smith Freehills contact.