The following is a guest post by Mr. Puneeth Nagraj of NALSAR University of Law, Hyderabad. Mr. Nagraj was a member of the NALSAR team that reached the round of 16 in the Willem C. Vis International Commercial Arbitration Moot this year.
The New York Convention (NYC) and the UNCITRAL Model Law (UML) have certainly come a long way in creating a framework within which international arbitrations can proceed with minimal interference from courts. However, certain jurisdictional issues sometimes act as roadblocks for the smooth resolution of such disputes. One such issue is that of anti-arbitration injunctions. The main purpose of anti-arbitration injunctions is to prevent parallel proceedings which are against the will of the parties. By issuing such injunctions, courts 'preserve' their jurisdiction over the dispute.
By putting a stop to an arbitration, the court would be encroaching on the power of Kompetenz-kompetenz (a well-accepted principle in arbitration as also recognised by Article 16 of the UML) of an arbitral tribunal. I will attempt to examine this issue in greater detail by examining case law from across jurisdictions.
Common Law Jurisdictions
INDIAN POSITION
The Kompetenz-Kompetenz rule is codified in Section 16 of the Arbitration and Conciliation Act and is the same provision as Article 16 of the UML. This rule allows an arbitral tribunal to rule on its own jurisdiction.
However, Section 9 allows a court to grant interim injunctions during the pendency of the proceedings. Section 45, which deals specifically with foreign arbitrations requires a court to refer a party to arbitration unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Section 45 contains a non-obstante clause and a court may entertain an application to be referred to arbitration if there exists a valid arbitration clause. This provision is in line with Article II (iii) of the NYC which deals with the validity of an arbitration agreement. Section 45 is different from Section 48 in that an injunction is granted under Section 45 before the commencement of the arbitral proceedings.
So, Indian courts are vested with the discretion of granting an interim injunction to stop the arbitral proceedings if any of the grounds of Section 45 are satisfied. Though there already exists a provision to set aside arbitral awards not in accordance with Indian law in Section 34, the provisions of Section 45 is aimed at reducing the costs that a party may incur in resorting to a foreign arbitration where the tribunal reaches the same finding as the court.
But this does not mean that the discretion given under Section 45 overrides the right of a tribunal under Section 16. In the case of Bharti Televentures v. DSS Enterprises, it was held that the intention of the legislature in Section 45 was to oust the jurisdiction of a court to intervene during an arbitral proceeding. Further, in Cultor Ford Science v. Nicholas Piramal, the Andhra Pradesh High Court refused to grant an injunction against arbitration under the LCIA Rules as the parties had willingly entered into the agreement and had spent a considerable amount of money in participating in the proceedings. In Union of India v. Dabhol Power, the Delhi High court held that the Section 45 does not oust the jurisdiction of the court from issuing an injunction if the proceedings are found to be oppressive.
On the flipside, Section 45 also empowers a court to stay court proceedings in favour of arbitration.
ENGLISH POSITION
The English position on anti-arbitration injunctions seems to follow a similar scheme as that of India. The courts have the power under Section 37 of the Supreme Courts Act, 1981 to issue anti suit injunctions, but it remains to be seen if this is in accordance with the Arbitration Act, 1996.
The 2007 case of Elektrim v Vivendi Universal has addressed this question. The petitioner claimed that the provisions of Section 37 are wide enough to enable the court in case of arbitration proceedings as well. Further, the case of Intermet FZCO v Ansol Ltd, the principles in Section 37 were applied to an anti-arbitration injunction.
In response, the court laid won a 2 pronged test to grant such injunctions. Firstly, a party must prove that the court has a power to grant an anti-arbitration injunction under Section 37 in the specific case. Secondly, they should also prove that such a power is consistent with the scheme of the Arbitration Act, 1996.
While the court does have such a power under Section 37, it is has been used very rarely. Further, the scheme of the Arbitration Act is such that the intervention of courts is limited as much as possible. The case of Fiona Trust and Holding Corp v Yuri Privalov the Court of Appeal upheld the principle of Kompetenz-kompetenz by stating that the first right to determine the issue lies with the tribunal.
Hence, though there is provision to grant anti arbitration injunctions, they are granted only in exceptional circumstances.
CIVIL LAW JURISDICTIONS
Anti-arbitration injunctions are seen as a common law oddity and Civil law countries do not have a practice of interfering with arbitral proceedings, in view of a strict application of the Kompetenz-kompetenz principle. This is confirmed by recent experiences in the area from France and Switzerland.
FRANCE
Section 809 of the Code of Civil Proceedings empowers the Tribunal of First Instance to order protective or conservatory measures to prevent imminent harm or to put an end to manifestly illegal trouble. However, two recent judgments of the Tribunal de Grande Instance of Paris have confirmed the idea that courts in France cannot intervene in arbitral proceedings.
In the January, 2010 case of S.A. Elf Aquitaine and Total v. Mattei, Lai. Kamara and Reiner, the petitioners asked the court to intervene in the arbitral proceedings on the ground that the tribunal was improperly constituted. However, the court held that the principle of Kompetenz-kompetenz means that the arbitral tribunal has exclusive jurisdiction to decide upon their own jurisdiction and that the court can step in only once the award is challenged.
In the March, 2010 case of Republic of Equatorial Guinea v Fitzpatrick Equatorial Guinea, de Ly, Owen and Leboulanger, the partial award of an ICC tribunal upholding its own jurisdiction was challenged on the grounds that if the award was set aside at the enforcement stage, the claimants could not recoup the advance paid to the ICC. However, the court held that despite the provisions of Section 809 an order to stay the proceedings could not be made as it would interfere with the arbitral proceedings and national courts do not have such jurisdiction.
These judgments are in line with a 2004 judgment of the Paris court which held that the court does not have the right to stay legal proceedings no matter what the grounds invoked.
SWISS POSITION
In the only precedent on anti-arbitration injunctions in the country, a Geneva Court of First Instance ruled in 2005 that Swiss courts cannot stay arbitration proceedings and such injunctions from foreign courts cannot be enforced in Switzerland.
The case involved a European aviation company entering into two contracts with a Namibian carrier which provided for arbitration as per IATA rules. Since the agreement did not nominate a place of arbitration, the Namibian party obtained an anti arbitration injunction from its domestic court.
The European party petitioned the Geneva Court of First Instance challenging the above injunction. The court held that while such injunctions are not opposed to international policy, they are against the principle of Kompetenz-kompetenz which the Swiss courts embrace. Hence, the court refused to enforce the injunction issued by the African court.
ARBITRAL TERRORISM?
Despite the obvious benefits in stopping arbitration that is oppressive; often, recourse to such injunctions can defeat the very purpose of choosing arbitration as a dispute resolution process. Bishop and Houston take exception to such methods and go to the extent of labelling it Arbitral Terrorism.
They point to three immediate effects of resorting to such recourse. Firstly, the delay caused by such a prolonged process defeats the most obvious advantage of expediency that arbitration offers. Secondly, going forward with the proceedings in the country where such an injunction is granted can prejudice one the party against whom the injunction was granted as the proceedings will now have to take place in the same court that granted such an injunction. Finally, parties who have agreed to arbitration use injunctions as a tactic to delay the process indefinitely or use the delay to leverage their interests during the proceedings.
To combat this trend, they propose four measures. Firstly, the parties should choose a forum where the arbitral law is considerably developed like Switzerland where the courts will refuse to grant or enforce such injunctions. Secondly, parties should look to insure their awards from political risks so that even if the award is not enforced, they can claim the money from the policy. Thirdly, parties involved in arbitrations with government or government owned companies should insist on ICSID arbitration, where a framework is such that states find it hard to refuse enforcement or issue injunctions. Finally, they propose a radical step of pinning liability on the state so as to discourage the trend of using anti arbitration injunctions as a delaying tactic.
CONCLUSION
It is an established proposition that national courts can intervene in international arbitral proceedings. But injunctions pose a unique challenge as they are issued even before the proceedings commence before a tribunal.
This is directly in conflict with the principle of Kompetenz-kompetenz which grants the tribunal the sole discretion to decide upon its jurisdiction. Though it is acknowledged that this is in accordance with public policy, the nature and manner of such intervention varies across jurisdictions. While Civil law jurisdictions refuse to grant injunctions even before the arbitration commences, Common law countries use this as a means to stop proceedings that obviously lack merit. The threshold to implement such measures also varies. While English courts refuse to grant such relief except in exceptional circumstances, Indian courts use it as a means to reduce the expenses incurred by the parties in order to protect their interests.
However, exercising such discretion carelessly can lead to discounting the interests of one of the parties. To overcome this difficulty, the measures proposed by Bishop and King can be handy.
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