ENGLISH COURT OF APPEAL GRANTS ANTI-ENFORCEMENT INJUNCTION TO PROTECT THIRD PARTY DEBTS UNDER AGREEMENTS SUBJECT TO ENGLISH ARBITRATION

In SAS Institute Inc v World Programming Limited [2020] EWCA Civ 599, the English Court of Appeal granted an anti-enforcement injunction in part, preventing enforcement of a US judgment in respect of assets in England and Wales. In an interesting example of an interplay between intellectual property (“IP”) claims and arbitration, the Court of Appeal held that SAS Institute Inc (“SAS”) cannot seek orders from a US court to enforce a US judgment confirming copyright infringement. The Court of Appeal decided that enforcement orders extending to debts due from customers to World Programming Limited (“WPL”), where WPL and its customers had agreed to submit their disputes to London-seated arbitration, would be an unwarranted interference with the jurisdiction of the English court.

Background

WPL, a UK company, took a software licence from SAS, a US corporation, on terms which purported to prohibit the use of the SAS software to produce a competing product (the “SAS Licence”). Contrary to the terms of the SAS Licence, WPL developed new competing software, which WPL then licensed to its customers in the UK, the US and other countries.

Some of the licence agreements between WPL and its non-US customers provided for arbitration in London (“London Arbitration Agreements”) or contained an exclusive jurisdiction clause in favour of the English courts (“English Litigation Agreements”).

Liability proceedings

English liability proceedings

SAS initiated court proceedings against WPL in England for copyright infringement and breach of contract. The claims of SAS were rejected, the English courts holding that the terms of the SAS Licence were null and void pursuant to EU law (Article 5(3) of Council Directive 91/250/EEC (the Software Directive), which was enshrined in English law in the Copyright, Designs and Patents Act 1988.

US liability proceedings

SAS also brought proceedings against WPL in the US courts, succeeding in its US claim for breach of contract, as well as in its statutory and fraud claims. In the judgment (the “US Liability Judgment”), compensatory damages were awarded for each of the heads of claim and trebled under US law. The Court of Appeals for the Fourth Circuit noted that “there were many factual and legal differences between the proceedings in England and in North Carolina, and that there was a conflict between North Carolina public policy (which was more protective of intellectual property and freedom of contract) and the EU public policy enshrined in the Software Directive”.

Enforcement proceedings

English enforcement proceedings

SAS sought to enforce the US Liability Judgment in England in respect of the fraud and statutory claims. The enforcement claim failed, in particular, due to issue estoppel, abuse of process and public policy reasons (the “English Enforcement Judgment”).

US enforcement proceedings

SAS registered the US Liability Judgment in California, requesting two in personam orders relating to entities identified as SAS customers from the US and other countries, not including the UK (the “SAS Customers”):

• an assignment order ordering WPL to assign to SAS its right to payment from the SAS Customers until the US Liability Judgment is satisfied in full (the “Assignment Order”); and
• a turnover order requiring WPL to transfer to the levying officer (i.e. a US Marshall) all money, accounts and other revenue streams arising from business conducted between WPL and the SAS Customers (the “Turnover Order”, and together with the Assignment Order, the “Orders”).

Although the requested Orders did not apply to debts owed by or received from the UK customers, SAS reserved the right to seek Orders which did extend to such debts.

English anti-suit injunction application

Without notice application

WPL successfully applied for an interim anti-suit injunction in the English court prohibiting SAS from taking steps before the US courts to (i) seek the Orders or any similar relief and (ii) restrain the pursuit of WPL’s application in the English courts for an anti-suit injunction or related relief.

The High Court decision

The English High Court declined to continue the injunction, noting, in particular, that the Orders were not so exorbitant in their nature as to trigger relief. The High Court granted permission to appeal and continued the original injunction pending appeal.

The English Court of Appeal decision

The Court of Appeal explained that what was sought by WPL was an anti-enforcement injunction, confirming it should not be treated differently from other forms of anti-suit injunctions. Although anti-enforcement injunctions were rarely granted, this was because applications for anti-enforcement injunctions were less likely to meet the applicable conditions (discussed in more detail in one of our previous blog posts), and not due to any additional requirements imposed upon applicants.

In order to decide whether the original injunction could be considered exorbitant in nature, the Court balanced the following principles:

• that of comity, noting that “the English court has great respect for the work of foreign courts” and “when an anti-suit injunction is sought on grounds which do not involve a breach of contract …the mere fact that things are done differently elsewhere does not … justify an injunction”; and
• that enforcement of judgments is territorial in scope, observing that for a court in one state to seek to enforce its judgment against assets in another state would be an interference with the sovereignty of this other state.

Customers in the US

The Court of Appeal discharged the original injunction, as it was too broad and prevented SAS from enforcing the US Liability Judgment against assets located in the US. To prevent such enforcement would represent an exorbitant exercise of jurisdiction by the English court, contrary to the principles of comity.

Customers in the UK

The Court of Appeal explained that the English Enforcement Judgment decided that (i) the English court would not permit its enforcement processes to be used by SAS to enforce the US Liability Judgement; and (ii) as a matter of substance, the US Liability Judgment would not be recognised and enforced in England and Wales.

In these circumstances, an Assignment Order extending to debts due from WPL customers in the UK (and therefore located in the UK) would be an exorbitant interference with the jurisdiction of the English court. However, the Court accepted SAS’s undertaking to give 14 days' notice of any intention to seek an Assignment Order extending to debts due from WPL customers in the UK, and therefore declined to grant any injunction in respect of any debts due from these customers.

Customers in third countries

As for the customers that entered into the London Arbitration Agreements or English Litigation Agreements with WPL, the Court noted that in this case the general rule that the debt was situated in the place of the debtor's residence or domicile was displaced. The Court concluded that those debts were situated in England and were in the same position as debts due from the UK customers. The Court therefore granted injunctions restraining SAS from seeking Orders extending to or relating to debts due from these customers in third countries.

The Court noted that the position was different regarding customers in third countries who did not contract with WPL on terms providing for arbitration in London or for the exclusive jurisdiction of the English court. Such debts were not situated in England, but rather in the country of the customer's residence. Whereas an Order in relation to such debts might be regarded as exorbitant, an English court would not have “a sufficient interest” (as required by comity) to intervene and to grant an injunction in the circumstances.

Comment

This is an interesting example of an anti-enforcement injunction being granted by the English court, restraining a party from pursuing enforcement proceedings in a foreign court. The underlying liability proceedings highlight the differences in the approach to IP-related issues in the UK and the US legal systems. The enforcement and anti-enforcement battle of the parties in the UK and the US demonstrates  that the English courts will take the principles of comity into account even where such differences are present. In addition to confirming that enforcement of judgments is territorial in scope, this case is also an example of how a decision to submit disputes to London-seated arbitration in an agreement with a third party may protect debts owed from this party from an enforcement sought by a counterparty in a foreign court.

For further information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, Olga Dementyeva, Associate or your usual Herbert Smith Freehills contact