It’s All About Jurisdiction: Anti-Suit Injunctions, Anti-Arbitration Injunctions, and Stays on Proceedings
When can an English court grant Anti-Arbitration Injunctions to restrain foreign-seated arbitrations? Do the same principles apply to grants of Anti-Suit Injunctions to restrain foreign litigation and Stays on English proceedings?
The late Hassib Sabagh (Hassib) was a Lebanese businessman. In 1950, together with the late Said Toufic Khoury, Hassib co-founded what has become the Consolidated Contractors Company group (the CCC group), the largest engineering and construction business in the Middle East. Its ultimate holding company is Consolidated Contractors Group SAL (CCG), which remains owned by the Sabagh and Khoury families. CCG and its subsidiaries are incorporated in Lebanon.
Hassib had three children who were his heirs under Lebanese law; each entitled to one-third of his estate.
On 9 July 2013, Hassib’s daughter (‘Sana’), brought proceedings in the High Court against her two brothers (‘Samir’ and ‘Suheil’) and various others, alleging that the principal defendants conspired:
- from a date, shortly after Hassib suffered a severe stroke in 2002 which incapacitated him for life, to misappropriate assets belonging to Hassib to fund improper or unauthorised investments in their own names (‘the Asset Misappropriation Claim’); and
- from Hassib’s death in 2010, to deprive her of her entitlement to one-third of the shares in CCG, which she claimed belonged to Hassib at the date of his death and which the defendants had caused to be improperly transferred to Hassib Holding SAL (‘HH’), a company owned and controlled by her brothers (‘the Share Deprivation Claim’).
The defendants challenged the jurisdiction of the English courts. In the alternative, they applied for a stay of the English proceedings either under s 9 of the Arbitration Act 1996 or under the court’s inherent jurisdiction or case management powers, contending that Sana’s claims fell within a Lebanon-seated arbitration agreement contained in Article 45 of CCG’s articles of association (‘Article 45’).
After the issue of the English proceedings, in March 2014, the principal defendants initiated an arbitration in Lebanon pursuant to Article 45, seeking determinations as to:
- the entitlements of Samir, Suheil, Sana and HH to shares in CCG (‘the Shares Claim’);
- the balance of any monies owed by CCG on Hassib’s shareholder’s account (‘the Assets Claim’).
Sana was named as Respondent to the arbitration but declined to participate. She disputed the jurisdiction of the arbitrators on the grounds that the claims advanced did not fall within Article 45 and that, not being a shareholder of CCG, she was not bound by the arbitration agreement constituted by Article 45.
The English Procedural History
In 2017, the Court of Appeal held that neither of Sana’s claims fell within Article 45 and accordingly refused a stay of the English proceedings.
In respect of the Share Deprivation Claim, the Court distinguished between (i) claiming an entitlement to be recognised as a shareholder (which might have fallen within Article 45); and (ii) claiming damages on the basis that the defendants had deprived Sana of this entitlement (which did not). The relationship was considered tripartite:
whilst Hassib would have been bound to arbitrate an assertion that he was entitled to be recognised as shareholder, as against the defendants, this cannot bind Sana to arbitrate her claim even if her claim depends in part on the question of Hassib’s ownership, since she does not claim on Hassib’s behalf.”
Sana then applied to the Commercial Court for an anti-arbitration injunction restraining the appellants from (i) taking any steps to prosecute the Lebanese arbitration; (ii) seeking recognition or enforcement of any award made in it; and (iii) requiring them to take steps to stay the arbitration.
Robin Knowles J (‘the Judge’) reviewed the effect of the 2017 judgment, and found it “plain” that the basis of the court’s refusal of a stay was that “in respect of the two claims Sana is not bound by Article 45 because the claims are not based on the Articles and she is not suing on behalf of Hassib as a shareholder.”
The Judge therefore granted the injunction on the basis that: “the claims pursued in, or the issues truly in dispute in, the Lebanese Arbitration…are within the two claims” brought in the English proceedings.
Permission was granted for two grounds of appeal.
The Court of Appeal
David Richards LJ (with whom the other members of the Court agreed) began by reviewing the claims made in the Lebanese arbitration. He found that, although Sana no longer sought proprietary remedies in respect of the shares before the English courts, this was not her original position. Nor had Sana renounced all possibility of advancing a proprietary claim to the shares in a different jurisdiction.
Hence: (i) a finding in the English courts that Sana’s claim to deprivation of a right to be a shareholder fell outside Article 45; did not (ii) implicitly or explicitly make any finding as to whether claims regarding entitlement (or not) to such shares fall within Article 45. David Richards LJ, therefore, concluded that, even if the Share Deprivation Claim (before the English courts) and the Assets Claim (in the arbitration) were not within Article 45, the Shares Claim (in the arbitration) was. It was on this basis that David Richards LJ proceeded to consider the appeals.
The First Ground of Appeal: No Power to Grant an Anti-Suit Injunction
Two submissions were advanced under this ground:
- The English court has no jurisdiction to grant an injunction to restrain arbitrations with a foreign seat (‘foreign arbitrations’) on the basis that it would be vexatious and oppressive because of proceedings in this jurisdiction.
- There is no such jurisdiction in circumstances where, if the claim in the foreign arbitration were brought in English proceedings, those proceedings would be subject to a mandatory stay under s 9 of the Arbitration Act 1996.
In respect of the first submission, David Richards LJ first considered the authorities on the power of the court to grant an injunction conferred by s 37 of the Senior Courts Act 1981. These clearly held that, while the power is not unlimited, it can be exercised not only in protection of a legal or equitable right, but also to prohibit conduct that would be vexatious and oppressive. In appropriate cases, this could include restraining the pursuit of foreign court proceedings.
David Richards LJ then considered that a similar power to restrain foreign arbitrations must exist, unless s 37 of the Senior Courts Act 1981 has been implicitly modified by statute to exclude an anti-arbitration injunction. The only candidate for such modifying statute was the Arbitration Act 1996, and David Richards LJ did not in that statute, read in conjunction with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, find any prohibition on the power of the court to grant an anti-arbitration injunction which otherwise exists under the Senior Courts Act 1981.
David Richards LJ, however, accepted the second submission that an anti-arbitration injunction will not be granted in respect of a claim which, if brought in English proceedings, would require the English courts to grant a stay pursuant to s 9 of the Arbitration Act 1996. Given that the share claim in the Lebanese arbitration was found to fall within the arbitration agreement, an anti-arbitration injunction in respect of that claim would be “wholly contrary to the fundamental principle underpinning the New York Convention and the 1996 Act of respecting and giving effect to arbitration agreements.”
The Second Ground of Appeal: the “Natural Forum”
By analogy with the grant of injunctions to restrain the pursuit of foreign court proceedings, the Appellant advanced the third and final submission that the English court will not grant an injunction to restrain a foreign arbitration on grounds that the foreign arbitration was vexatious and oppressive unless England is the natural forum for the dispute.
Although there was ‘no room for doubt’ that this is the general rule for anti-suit injunctions, David Richards LJ considered this did not mean that the principle was equally applicable to anti-arbitration injunctions.
Approaching the issue as a matter of principle, David Richards LJ first identified the rationale and policy underpinning the general rule for anti-suit injunctions. Although the subject of anti-suit injunctions is not the foreign court itself, but is properly the defendant amenable to the jurisdiction of the English court, such indirect interference with the jurisdiction of a foreign court is nevertheless prima facie contrary to the principle of comity in international law. As a result, the test of ‘natural forum’ is one of the key means through which indirect interference with a foreign court’s jurisdiction is kept within strict bounds.
By contrast, there is no comparable interference with the jurisdiction of a foreign court through the grant of an anti-arbitration injunction. Rather, these interfere with the fundamental principle of international arbitration that national courts should uphold arbitration agreements: where it is clear that a dispute is within the terms of a valid arbitration agreement, the courts should not interfere.
Furthermore, the English authorities clearly held that English courts generally should not determine questions of the validity of a foreign-seated arbitration agreement. What the English court will normally have to decide is whether the issues in the English proceedings fall within the scope of the arbitration agreement (emphasis in original).
There was no requirement, therefore, that an applicant for an anti-arbitration injunction need show that England is the natural forum for the dispute.
Conclusions and Commentary
David Richards LJ therefore (i) allowed the first appeal and discharged the anti-arbitration injunction as regards the Shares Claim in the Lebanese arbitration; and (ii) but dismissed the second appeal and upheld the injunction as regards the Assets Claim in the same arbitration.
This case will be of significant interest to practitioners of arbitration, arbitration-based litigation, and all who grapple with issues of jurisdiction. The interrelation between both types of injunctions and stays on proceedings, considered both from the perspective of legal principle and practical effect, is strikingly demonstrated as complementary, yet not quite overlapping. It is, therefore, imperative to understand the operation of and principles underlying each.
In particular, it is worth noting that, although the authorities on the grant of an injunction under s 37 of the Senior Courts Act 1981 were clearly held to apply to both anti-suit and anti-arbitration injunctions, the policies governing such grants were nevertheless found to be distinct: anti-suit injunctions are concerned with the international law principle of comity; anti-arbitration injunctions with pacta sunt servanda.
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