Anti-suit measures granted by arbitrators: enforceability issues in the light of the 1958 New York Convention and the Brussels I Regulation. Vilija Vaitkutė Pavan

Anti-suit measures granted by arbitrators:

enforceability issues in the light of the 1958 New York Convention and the Brussels I Regulation

Vilija Vaitkutė PavanLAWIN Partner, Attorney at Law

Russian Arbitration Day 2014

1958 New York Convention

/ The 1958 New York Convention has 2 objectives:

• Recognition and enforcement of arbitration agreement:

Art. II (3): The court of a Contracting State [...] in a matter in respect of which the parties have made an agreement [...] shall [...] refer the parties to arbitration [...].

• Recognition and enforcement of foreign arbitral award:

Art. III: Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon [...].

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Arbitration agreement

/ By arbitration agreement a party undertakes:

• to refer any disputes to arbitration;

• to take part in the proceedings in good faith;

• to carry out the rendered award.

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Aim of anti-arbitration and anti-suit measures

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anti-arbitration measures:

(i) To prohibit arbitration tribunal from hearing the case (e.g. Respondent, a State entity in Ethiopia, obtained a series of decisions by the Ethiopian courts, amongst which the Supreme Court's „temporary injunction against the Arbitral Tribunal ordering the suspension of the arbitration proceedings with immediate effect“Salini Costruttori S.p.A and the Federal Democratic Republic of

Ethiopia, Addis Ababa Water and Sewerage Authority)

anti-suit measures:(i) To protect and uphold arbitration

agreement (e.g. „It is not contested that an arbitrator has the power to order the parties to comply with their contractual commitments. The agreement to arbitrate being one of them, its violation must be dealt with in the same manner when it is patent that the action initiated in a state court is outside the jurisdiction of such court and is therefore abusive.“

14 May 2001, The Interim Award in ICC case No. 8307)(ii) To obstruct the enforcement of the

arbitration award (e.g. the parties were ordered to refrain „from doing anything towards enforcing, complying with or operationalising“ the arbitral decision until a fraud claim brought by IPTL against Standard Chartered is determined.

The High Court in Dar es Salaam (Tanzania), the injuncion of 23 April 2014 against a Hong Kong subsidiary of the UK‘s Standard

Chartered Bank and Tanzanian state power company Tanesco, the parties to ICSID case).

Common law and the civil law

/ Fundamental conceptual division between the common law and civil law countries:

• in the common law countries a court issues anti-suit injunctions to protect the parties‘ contractual right to arbitration and to uphold their arbitration agreement;

• the civil law countries tend to believe that anti-suit injunctions are directed against foreign sovereignty as much as against the parties themselves.

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Anti-suit measures in arbitration

Anti-suit measures may be issued by:

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National courts Arbitrators (including emergency arbitrator)

Anti-suit measures granted by national courts

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Within EU/ECJ‘s West Tankers Case: granting anti-suit injunctions by one EU court in respect of proceedings in another EU court is precluded by Brussels I Regulation;

/New Brussels I Regulation -Wheareas clause (12).

Outside EU/Continue to issue (e.g. Ust-Kamengorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35 (anti-suit injunctions from High Court retraining the appellant from continuing the Kazakh proceedings);

/Ingosstrakh-Investments v BNP Paribas SA [2012] EWCA Civ 644; the class of persons potentially subject to anti-suit injunction in support of arbitration extends beyond those who are the parties to arbitration agreement).

When to apply to court

/ Anti-suit measure is urgently needed;

/ Arbitrators may not consider it part of their function to issue emergency orders;

/ Arbitral orders may be difficult to enforce;

/ Interim measures may require the involvement of third parties;

/ Governing law may limit arbitrators‘ jurisdiction to grant interim measures.

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Anti-suit measures granted by arbitrators

By its nature and legal effect

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Interim measure Remedy for specific performance in the final award

Anti-suit measures granted by arbitrators

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Powers derive from

Legal Instruments

(i) Arbitration agreement(ii) General arbitration principles:

• arbitrators’ jurisdiction to sanction all breaches of the arbitration agreement;

• arbitrators’ power to any appropriate measures to avoid the aggravation of the dispute;

• arbitrator’s obligation to ensure the effectiveness of their future award;

(iii) Prima facie jurisdiction

(i) No unified international document(ii) UNCITRAL Model Law Art. 17(iii) Arbitration rules applicable to the dispute(iv) Lex arbitri(v) 1958 New York Convention (remedy for specific

performance)

2008 UNCITRAL Model Law Art. 17

(1)Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures;

(2)[...] (b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself.

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2010 ICC Rules Art. 28

"arbitral tribunal may make the granting of any such measure […] it deems appropriate."

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MKAS (ICAC) Rules Art. 36

1. Unless the parties agree otherwise, the arbitral tribunal may, at the request of a party, order either party to take such interim measures of protection in respect of the subject matter of the dispute as it considers appropriate.

[...]

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Lex arbitri

/ May differ from country to country;/ Italy - only state court has the power to grant interim measures;/ Swiss - parties to the dispute might apply to the arbitral tribunal for interim

measures, and the tribunal even has power to seek assistance from a state court;

/ United Kingdom - in the absence of an agreement to the contrary, the arbitral tribunal has the power to issue interim measures;

/ Russia – Art. 17 of Federal Law on International Commercial Arbitration: „Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measures of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. [...]“

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Measures for non-compliance with interim measures (1)

/ 62% of the granted interim measures are complied with voluntarily;

/ 10% of the parties seek the enforcement.

2012 International Arbitration Survey: Current and Preferred Practices in the Arbitral Process

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Measures for non-compliance with interim measures (2)

/ Arbitral tribunal usually does not have power to ensure compliance, but may sanction;

/ Parties are free to agree on the remedies arising out of the failure to comply with interim measures;

/ "Adverse inference" is another possible penalty, but it should follow from:

• arbitration agreement;

• TOR (if any);

• applicable procedure rules;

• Lex arbitri (e.g. England);/ Decision on arbitration costs;/ Can be enforced through judicial authorities (e.g. England);/ Relief for damages might be sought.

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Enforcement of interim measures

/ The form may have impact on enforceability: recommendations, procedural orders, partial awards, directions, etc.;

/ If the interim measure is issued in the form of a partial award, it may be possibly enforced under the New York Convention;

/ Some countries expressly foresees the enforcement of awards or rulings/orders on interim measures (e.g. Lithuania):

“An arbitral award or ruling on interim measures made in any other state may be recognised and enforced in the territory of the Republic of Lithuania.” (Art. 26 of the Law on Commercial Arbitration of Lithuania).

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Measures for non-compliance with final award

/ May foresee the obligation to terminate the parallel proceedings and the penalty if the party fails to comply with such obligation;

/ Later claim for damages (usually - litigation costs);

/ Consequences for non-compliance with final award.

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Enforcement of final award (1)

/ Final award is subject to recognition and enforcement under the New York Convention;

/ However, such award may be not recognized under the ground of violation of public order;

/ The relation of New York Convention and Brussels I Regulation is still not clear, ECJ preliminary ruling on this issue will be made (ECJ case No. C-536/13).

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Enforcement of final award (2)

/ Could the anti-suit measure be regarded as eliminating the court's right to decide on its jurisdiction?

/ Are the anti-suit measures in line with Brussels I, and could it be recognised and enforced in EU Member State?

/ The problem was raised in the ruling of the Supreme Court of Lithuania in Republic of Lithuania v. OAO Gazprom (Supreme Court of Lithuania Ruling in the Civil Case No. 3K-7-326/2013);

/ According to the Supreme Court:

• the uncertainty of relation between the New York Convention and EU law exists,

• it is important to clarify that relation in order to ensure that the Court does not violate its duty to ensure the full effectiveness of EU law in order to uphold the principle of supremacy of EU law.

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Conclusions

/ The anti-suit measures may assist in compliance of the parties with the arbitration agreement;

/ Anti-suit measures may be issued by the state courts and by arbitrators, both, at the very beginning and the end of the arbitration proceedings;

/ The form of anti-suit measures depends on the stage of arbitration proceedings and may have impact on its enforceability;

/ Arbitrators usually have power to sanction the party not complying with anti-suit measure;

/ However, recognition and enforcement of such measures face difficulties.

21Vilija Vaitkutė Pavan, e-mail: [email protected]

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