ENGLISH COURT REFUSES DEFENDANT'S PLEA TO EXERCISE DISCRETION AND GRANTS ANTI-SUIT INJUNCTION

In VTB Bank PJSC v Valeri Dzhanibekovich Mejlumyan [2021] EWHC 1386 (Comm), the English High Court made final an interim anti-suit injunction granted earlier this year (see our post here).   There was no dispute between the parties on the existence of a valid and binding arbitration agreement and the Court did not accept that the claimant's alleged delay in seeking the anti-suit injunction, participation in local proceedings or conduct were otherwise sufficient to exercise the court's discretion to refuse the anti-suit injunction.

Background

The background to this dispute is set out in detail in our previous post on the decision granting the claimant's (VTB) application for an interim anti-suit injunction. Briefly, the dispute relates to VTB's attempt to enforce certain share pledges against the defendant's (Mr Mejlumyan) interest in certain companies due to a default under a facility agreement. Mr Mejlumyan sought an injunction before the Armenian court against VTB's enforcement of the share pledge (the Proceedings). However, the share pledge provided for London-seated arbitration.  VTB objected to the Armenian court's jurisdiction in the Proceedings. In February 2021, VTB sought an anti-suit injunction before the English High Court when the jurisdiction hearing before the Armenian court was completed and judgment was awaited.  In March 2021, the English High Court granted an interim anti-suit injunction to "hold the ring" due to Mr Mejlumyan's Covid-19 illness and his inability to give instructions. The application before the English High Court in this case was for final disposal.

There was no dispute between the parties that a binding and applicable arbitration agreement covering the scope of the dispute existed.  Mr Mejlumyan's case was that although VTB was prima facie entitled to an anti-suit injunction, the Court should exercise its discretion to deny the anti-suit injunction on three grounds. These were that:

• VTB had excessively delayed its application for an anti-suit injunction;
• VTB had submitted to the jurisdiction of the Armenian courts; and
• VTB's conduct gave rise to discretionary considerations that militated against the grant of an anti-suit injunction.

Mr Mejlumyan contended that while the grounds bled into each other, even if one of them were to be established, the Court should deny the anti-suit injunction.

Decision of the English High Court

On delay, Mr Mejlumyan had submitted that VTB had not sought the anti-suit injunction as soon as possible.  The Proceedings had been filed in September 2019, well over a year before the anti-suit injunction was sought. Further, VTB had participated in the jurisdiction hearing before the Armenian court and sought the anti-suit injunction when judgment on that issue was pending. On Mr Mejlumyan's case, "VTB had waited till the point when maximum prejudice would be inflicted on Mr Mejlumyan in [the] Proceedings, with minimal prejudice to it".

The Court considered when delay would be significant in relation to the exercise of the discretion to grant anti-suit relief. The relevant principles were that:

• an anti-suit injunction should be promptly sought;
• delay and comity are linked so that the longer the delay, the more involved the foreign court is and, accordingly, the greater the interference likely to result from the grant of an injunction;
• the degree of prejudice likely to be suffered by the defendant due to any delay is material; and
• the extent to which the delay was justifiable or excusable in the circumstances and this will be weighed against the importance of enforcing the arbitration agreement.

Even a delay that is open to criticism will not be sufficient to justify refusing an injunction and permitting a breach of contract to continue. Importantly, the Court noted that "it seems that the time taken in challenging the foreign court's jurisdiction does not in itself justify delay in applying for the anti-suit injunction".

In light of these principles, the Court concluded that the delay could be excused in this case. While the Proceedings were begun in September 2019, VTB was not formally served until May 2020.  Further, there were adjournments due to related insolvency proceedings and Covid-19. The Court concluded that the Proceedings were still at an early stage (minimising the considerations of comity), the defendant was not prejudiced and there were reasons explaining VTB's delay.

On VTB's submission to the Armenian court, the Court noted that the test was "whether the party has by his conduct in the proceedings acted in such a way which is only necessary or only useful if objection to the jurisdiction of the court in question has been waived or has never been entertained at all".  In this case, VTB had objected to the jurisdiction of the Armenian court and shortly after, filed a statement of defence. Mr Mejlumyan argued that VTB was not required to file a statement of defence. However, the Court agreed with VTB that as a matter of Armenian court procedure, VTB would have lost the right to defend itself if it did not file a statement of defence (in circumstances where it lost the jurisdictional challenge). The Court was satisfied that there was no unequivocal representation by words or conduct from VTB that it was not taking an objection to jurisdiction of the Armenian court. Accordingly, VTB had not submitted to the jurisdiction of the Armenian court.

Finally, on conduct, Mr Mejlumyan argued that VTB had not fairly presented its case in support of the anti-suit injunction application and fell foul of the duty to make full and frank disclosure. The points raised related to VTB's knowledge of the nature of the Proceedings, steps taken by it to ensure the transfer of the shares under the share pledge and its submission to the Armenian court.  On an assessment of the facts, the Court was not convinced that VTB had unfairly presented its case on any of these points.

Mr Mejlumyan also alleged that VTB was acting inconsistently in seeking an anti-suit injunction as, its agent NIC had commenced a related LCIA arbitration and then sought ex-parte relief before the Armenian court. The Court did not see any substance in this argument. It noted that NIC had indeed sought a freezing order against Mr Mejlumyan before the Armenian court in support of the LCIA arbitration. However, that was quite different from starting substantive proceedings in breach of the arbitration clause, which was the case here.

The Court was not persuaded that the points raised by Mr Mejlumyan either individually or collectively justified refusal of an anti-suit injunction. Accordingly, the anti-suit injunction was granted.

Comment

This decision is a helpful exposition of the existing principles governing the English courts' discretion in relation to anti-suit injunctions. A party will ordinarily be entitled to an anti-suit injunction to restrain proceedings brought in breach of an arbitration clause and, while anti-suit relief is discretionary, the English courts will not lightly refuse an anti-suit injunction where there is a clear breach of an arbitration clause. The case is also a reminder of the importance of avoiding delay in making applications of this kind.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

The authors would like to thank Asmita Singhvi for her assistance in preparing this blog post.