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UK Supreme Court Decision Reinforces the Reputation of England and Wales as an Arbitration-Friendly Jurisdiction

Jun.14.2013

On 12 June 2013, the UK Supreme Court confirmed that the English courts have the power to issue an injunction against the commencement or continuation of foreign proceedings outside Europe. The decision of the Court in Ust-Kamenogorsk Hydropower Plant JSC (JSC) v AES Ust-Kamenogorsk Hydropower Plant LLP (AESUK) (AES) may be contrasted with the well-known case of West Tankers Inc v Allianz SpA (The Front Comor), which made clear that courts in the EU were not able to issue injunctive relief to prevent a claim being commenced in breach of an arbitration clause in foreign courts elsewhere in Europe, where the Brussels Regulation (EC No. 44/2001) or Lugano Convention applies. This decision confirms England and Wales as a favourable jurisdiction for parties who have agreed to resolve their disputes by arbitration.

The dispute in AES concerned a 25 year concession agreement to operate a hydroelectric plant in Kazakhstan. The concession agreement is governed by Kazakh law and provides that disputes arising out of or in connection with the concession agreement that cannot be resolved by negotiation are to be determined in a London-based arbitration under ICC Rules. In 2009, JSC brought proceedings against AESUK in the courts of Kazakhstan. AESUK issued proceedings in England seeking a declaration that the arbitration clause was valid and enforceable and requesting an anti-suit injunction be issued restraining JSC from pursuing its proceedings in Kazakhstan.

It was common ground that the arbitration clause is governed by English law.

In 2004, the Kazakh Supreme Court had ruled that the arbitration clause was invalid on the basis that the arbitration agreement covered tariff disputes, contrary to Kazakh public policy, and that the reference to the Rules of the ICC was not a reference to the ICC and thus no arbitral body was specified by the arbitration clause. In the English proceedings, the judge at first instance (Burton J) and the Court of Appeal had found that they were not bound by this ruling as the arbitration agreement is subject to English law, and moreover neither ground was sustainable.

An unusual feature of this case is that AESUK had not commenced, nor demonstrated any intention to commence, arbitration proceedings. It was not asking the court to restrain foreign proceedings in favour of its own set of proceedings. The Supreme Court highlighted that an agreement to arbitrate disputes has both positive and negative aspects: a positive obligation to seek relief through arbitration in the agreed forum; and a negative obligation not to seek such relief in any other forum. Therefore, arbitration proceedings did not need to be commenced or contemplated in order for the court to act, as the negative obligation of the agreement to arbitrate was breached by the court proceedings commenced in Kazakhstan.

Parties who agree to arbitration in England and Wales to resolve their disputes can be assured that the English courts will take a robust view with regard to restraining competing proceedings brought outside Europe (the Brussels Regulation/Lugano Convention space) in breach of such an arbitration clause, whether or not an arbitration in accordance with the arbitration clause has been, or is intended to be, commenced.

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