English Commercial Court makes a declaration that an arbitral tribunal does not have jurisdiction following the invocation of an asymmetric clause

In a recent decision handed down by HHJ Pelling KC, the Commercial Court determined that an arbitral tribunal did not have jurisdiction over a dispute on the basis that Barclays Bank plc (Barclays) had invoked an asymmetric dispute resolution clause in favour of the English courts. The Court also amended the terms of an anti-suit injunction (ASI) against the counterparty to the dispute, VEB.RF (VEB), confirming that VEB was permitted to raise its claim in the English courts.

This decision followed a judgment delivered ex tempore on 19th November 2023, by which the Court gave permission to Barclays to continue its application under section 32 of the Arbitration Act 1996 (the Act) for a declaration that the tribunal had no jurisdiction over the dispute.

This case is one of a handful of cases in which an application under s32 of the Act has been made successfully. It is also an illustration of the practical issues that may arise when a party relies on an asymmetric dispute resolution clause to have a dispute resolved in its preferred forum.

Background

The factual background to this case is briefly covered in our earlier blog post here. In short, Barclays and VEB were parties to an ISDA Master Agreement in the 1992 form with a schedule of bespoke terms (the Agreement). In 2022, VEB was designated as a sanctioned entity by the UK, EU and US. This led to termination of the Agreement, which resulted in Barclays owing money to VEB. However, Barclays was precluded from making the payment due to sanctions.

The Agreement included an LCIA arbitration clause, which required that any disputes arising from the Agreement should be resolved by arbitration under the rules of the LCIA. However, it also contained an asymmetric right which enabled Barclays to elect to refer any claim that was commenced by way of arbitration to the English courts within 14 days of service of the notice to arbitrate (the Right to Elect Jurisdiction).

VEB commenced legal proceedings in the Arbitrazh Court of the City of Moscow, seeking to recover the sums involved. In response, Barclays obtained an ASI and anti-enforcement injunction from the Court, as discussed in our earlier blog post here. The final ASI prohibited VEB from (i) taking any further steps to pursue the Russian proceedings and (i) commencing or pursuing "any other claim or proceedings arising out of, or in connection with, the Agreement …..in Russia or otherwise other than by means of LCIA Arbitration in accordance with Part 5(k)(i) of the Agreement".

In response to these injunctions, VEB applied for the suspension of the Russian proceedings and commenced an LCIA arbitration. Barclays then exercised its Right to Elect Jurisdiction (the Notice).

VEB disputed the validity of the Notice on the basis that (i) the terms of the injunction made it impossible for VEB to commence court proceedings and/or (ii) that Barclays had waived its right and/or was estopped from serving the Notice. 

Section 32(1) of the Act provides that "The court may, on the application of a party to arbitral proceedings (upon notice to the other parties), determine any question as to the substantive jurisdiction of the tribunal". An application cannot be considered unless the grounds set out in section 32(2) discussed below are met.  Barclays was granted permission by the arbitral tribunal under s32(2)(b) of the Act to make an application.

Accordingly, the Court was asked to decide first the threshold issue of whether the criteria in section 32(2)(b) of the Act were satisfied, and second, the substantive jurisdictional challenge.

Judgment on the threshold conditions for section 32 of the Act

In its ex tempore decision the Court noted that, as a derogation from the general principle that a tribunal can determine its jurisdiction subject to challenge by a party, s32 orders should be considered the exception rather than the rule, and that it is the role of the s32(2)(b) criteria to restrict the circumstances in which courts will make s32 orders. The statutory conditions in s32(2)(b) specifically are whether: (i) the determination of the question is likely to produce a substantial saving in costs; (ii) the application has been made without delay; and (iii) there is good reason why the matter should be determined by the court.

It was common ground that the application was made without delay. On the question of whether there would be a substantial saving of costs, the Court noted that it was "almost certain" that there would be a s67 challenge to the tribunal's determination of its own jurisdiction given the sum in issue, the jurisdictional issues in dispute and the importance that each party placed on their rights under the Agreement. This would generate significant wasted costs and delay for the parties. In response to VEB's argument that this is a possibility for every case where there is a jurisdictional challenge, the Court noted that the s32(2) criteria act as a very effective primary practical filter – the fact that permission to make the application was given by the tribunal was a material consideration.

The Court therefore concluded that there were good reasons for the court to determine the issue of jurisdiction. The Court was persuaded in particular by the likelihood of the cost, delay and uncertainty that would result from a s67 challenge, which would be exacerbated by any attempts to enforce an award whilst a s67 challenge would be pending, and the parties' agreement that the dispute needed to be resolved as a matter of exceptional urgency.

Judgment on the substantive challenge to jurisdiction

VEB opposed Barclays' application on the basis that:

1. Under the terms of the ASI (as set out in the background section above), it was prohibited from commencing proceedings in England. It submitted that the Right to Elect Jurisdiction clause could not be construed in a manner which required "the impossible to be done" (the Formal Validity Issue);
2. In the alternative, Barclays had waived its Right to Elect Jurisdiction, or was estopped from exercising the right, by virtue of its conduct (the Waiver Issue).

Formal Validity Issue

The Court dismissed VEB's challenge. It was not impossible for VEB to withdraw the arbitration proceedings in accordance with the Agreement; the Notice simply said that if VEB wished to pursue the dispute, it had to do so in the English courts. There was also no question of impossibility because, if VEB considered that the ASI was a bar to the commencement of proceedings, it could and should have approached Barclays for a variation of the order. It was "close to absurd" to suppose that Barclays would not have consented to a variation, or if consent was refused, that the Court would have refused such a variation. In any event, it was fanciful that the Court would have construed the final ASI order as precluding the commencement of English court proceedings by VEB – it was clearly intended to relate to the Moscow proceedings.

Regardless of the above conclusions, the Court amended the final ASI order to confirm that VEB could commence proceedings in the English courts without being in breach of its terms.

Waiver Issue

VEB relied on waiver by election, pure waiver, unilateral waiver and waiver by estoppel. It pointed to various examples of statements or arguments advanced by Barclays in the course of its application for an ASI (both in its without notice application and during the final injunction hearing) and the terms of the orders themselves in which Barclays relied on the arbitration agreement and sought an order to restrain VEB from commencing a claim other than by arbitration.

The Court addressed by way of preliminary point clause 9(b) of the Agreement, which provided that no waiver would be effective unless it was agreed in writing. The Court held that this clause excluded informal waiver: in light of the Supreme Court's decision in Rock Advertising (albeit a case which concerned variations rather than waivers) there would have to be words or conduct constituting an unequivocal representation that the waiver was valid notwithstanding that the formality requirements contained in clause 9(b) had not been complied with.

Turning to the relevant facts, the Court concluded that:

• There was no sufficient unequivocal act, statement or representation capable of supporting the allegation of waiver generally. In particular, the court orders relied on by VEB could not be said to be (or be sufficiently) unequivocal to support its waiver and estoppel cases.
• There was no unequivocal election by Barclays to waive its right to commence court proceedings. That VEB understood this was confirmed by the parties' general conduct and also specifically by the parties' conduct at the return date hearing for the final ASI, where neither party proceeded on the basis that the Right to Elect Jurisdiction clause had ceased to be available to Barclays (and indeed, counsel for VEB had acknowledged the possibility of court proceedings).
• In relation to waiver by estoppel, VEB could not demonstrate the required detrimental reliance. Although VEB relied on having engaged Russian and English counsel to act for it in the arbitration and in preparing a 28-page notice of arbitration, VEB would have incurred those costs in any event had it complied with the Agreement and commenced arbitration rather than the Russian proceedings.
• There was also no evidence that would support the proposition that Barclays was estopped from relying on clause 9(b) of the Agreement, which required any waiver to be in writing.

Comment

This case contains a helpful example of the application of the criteria required for the Court to consider a question of substantive jurisdiction under s32 of the Act. In particular, it shows the practicality of the Court in thinking through the likely consequences if it did not determine the question and the implications for efficient dispute resolution. The decision regarding the asymmetric jurisdiction clause also demonstrates the Court's robust protection of the contractual bargain struck by the parties – including that parties should take a pragmatic approach to the construction of court orders in light of their contractual framework.