In Sabbagh v Khoury and others [2019] EWCA Civ 1219, the Court of Appeal reviewed the extent to which an English court may grant an injunction to restrain parties from participating in an arbitration with an overseas seat.

Background

Whilst the willingness (subject to EU Law) of the English courts to grant an anti-suit injunction to restrain court proceedings in breach of an arbitration agreement with English seat is well known, there also exist a few cases where orders have been made to restrain overseas arbitrations. Sometimes this has been because of an exclusive jurisdiction clause in favour of the English courts. But, cases have also indicated that such measures may also be available in exceptional cases concerning “vexatious and oppressive” conduct.

In Sabbagh the Court of Appeal considered the boundaries of that latter situation. In broad terms, the dispute involved the heirs to a large Lebanese construction group. The claimant had commenced English court proceedings alleging that the defendants (which, amongst others, included two of her brothers and the ultimate holding company (CCG) of the construction group) had conspired to misappropriate certain of her father’s assets, and deprive her of an entitlement to shares in CCG. Shortly afterwards, some of the defendants (the “appellants”) commenced an arbitration in Lebanon (relying on article 45 of CCGs articles of association, which provided for such in respect of certain claims) seeking determinations on similar issues.

In the English proceedings, the defendants argued that the claimant’s case fell within article 45 and so should be stayed in favour of arbitration (pursuant to s.9 Arbitration Act 1996). The Court of Appeal rejected this ([2017] EWCA Civ 1120), holding that none of the claimant’s claims before the English court were caught by article 45 (the “2017 judgment”). The claimant then applied for an injunction to restrain the appellants from continuing the arbitration. This was granted by the first instance judge. Although he acknowledged that such an order was exceptional, his view was that the 2017 judgment had decided that article 45 did not cover the claims brought in the arbitration; and so it would be vexatious and oppressive for the appellants to ignore that ruling.

Decision of the Court of Appeal

The appellants’ appeal was based on three main arguments. These, and the Court of Appeal’s conclusions, were as follows:

No power to grant an anti-arbitration injunction on the basis that the foreign arbitration is “vexatious and oppressive”

The appellants asserted that such an order was simply inconsistent with the New York Convention and principles of non-intervention in foreign arbitration. The Court of Appeal rejected this argument. It reasoned that the starting point was s.37 of the Senior Courts Act 1981 under which the court had such a power unless any relevant statue (in this case the Arbitration Act 1996) had excluded such a power; which was not the case. It was, however, clear from the principles embodied in the New York Convention that any such power should be exercised with great restraint.

No injunction where the arbitration agreement captures the dispute.

The Court of Appeal accepted this proposition as being irresistible; such an order could not be granted in such a case. Why was this in issue when the 2017 judgment had apparently already found that the arbitration clause did not apply to the claims before the court? The reason was because, contrary to the judge’s view, the Court of Appeal did not accept that the 2017 judgment was determinative of whether article 45 caught all of the claims before the tribunal (as opposed to those before the English court). Whilst it was so determinative in relation to the claims concerning the misappropriation of assets (as the issues in the two fora were indistinguishable), the same could not be said of the claims concerning the shares in CCG. In that regard, the 2017 judgment could, for a number of reasons, only be said to be dealing with the particular claims before the English courts. As that was the case, and article 45 did capture the shares claims before the tribunal, the injunction had to be discharged in relation to those claims.

Natural forum.

The appellants’ final argument was that, as between the seat of arbitration and England, the latter must be a more appropriate forum before the injunction could be granted. This was drawn from English cases on anti-suit injunctions. The Court of Appeal did not accept that it was right to equate the two. An anti-suit injunction involved a ruling that the foreign court lacked jurisdiction and engaged issues of comity. The natural forum requirement was a key mechanism of restraint in that context.

By contrast, an anti-arbitration injunction did not engage such matters; instead the principle it cut across was that courts should uphold arbitration agreements. That being so, when was such a measure proper? The Court of Appeal’s approach can be summarised as follows: The starting point was that there was no basis to interfere where the arbitration agreement applied. By contrast - if that was not so either because it was common ground between the parties or because of a previous determination to that effect - the court could grant such an injunction in exceptional cases. As to when there might be such a “previous determination” in relation to a foreign arbitration clause, the court went on to highlight that it would only be in unusual cases that the English courts would determine such matters. An application for a stay of proceedings brought before the English courts was a key example, but even then it was within the court’s power to stay the proceedings and leave the matter to the tribunal, rather than positively determine the matter itself. In this case, the court had, in the 2017 judgment and insofar as the English courts were concerned, already ruled that the assets claims in the arbitration fell outside of the arbitration clause. Accordingly, that aspect of the 2017 judgment fell within the scope of a “previous determination” as to the non-application of an arbitration clause which, as a matter of principle, the English court could grant an injunction to protect.

Comment and conclusion

Anti-arbitration injunctions can be perceived as controversial since they sit somewhat uncomfortably with principles of kompetenz-kompetenz and the supervisory jurisdiction of courts of the seat of arbitration. And there are aspects of the Court of Appeal’s judgment – particularly the terms of its re-assertion of the existence of such a power – which may attract criticism on that basis. In that regard, however, what should not be overlooked is the approach of the court to the exercise of that power. In cases involving “oppression or vexatious conduct” it seems clear that this is not to be applied to a nebulous assessment of such conduct. Rather, putting aside cases concerned with enforcement of an agreement between the parties, the power appears to be principally concerned with supporting previous rulings of the court on the scope of an arbitration clause – which itself will have only been made in limited circumstances where it is appropriate for the court to have become involved.

Click here for the judgment.

Stephen Lacey

Counsel PSL
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