Anti-suit Injunctions – The English court continues to adopt a pro-arbitration stance

Two recent decisions have underscored the English court’s readiness to grant anti-suit injunctions to enforce agreements for London-seated arbitration. In VTB Bank PJSC v Mejlumyan [2021] EWHC 1386 (Comm) (“VTB v Mejlumyan”), the claimant bank was granted an anti-suit injunction by the Commercial Court to stop the defendant businessman from continuing proceedings in an Armenian court. In ZHD v SQO [2021] EWHC 1262 (Comm) (“ZHD v SQO”), the Commercial Court granted the claimant shipowners two injunctions – an order to restrain proceedings commenced by SQO in Vietnam and an order for SQO to use its best endeavours apply for a stay of those proceedings.

Anti-suit Injunctions

Section 37(1) of the Senior Courts Act 1981 (the “SCA”) empowers the court to grant an anti-suit injunction to restrain foreign proceedings where it appears to the court to be just and convenient to do so. The order may be interlocutory or final and made unconditionally or on such terms and conditions as the court thinks fit (sections 37(1) and (2), SCA). It may prohibit a party from commencing or continuing proceedings (prohibitory) or require a party to take positive steps to remediate the breach of the arbitration agreement (mandatory). Given that an anti-suit injunction in support of an arbitration agreement enforces the parties’ negative promise not to bring proceedings in a foreign court, it is not necessary for the applicant to show that arbitration proceedings have commenced or are even contemplated at the time of applying for the injunction.

Unless the respondent can show “strong reasons” otherwise, an applicant will in principle be entitled to an anti-suit injunction if the court is satisfied that there is a “high degree of probability” that a binding arbitration agreement was established, and that the respondent is bound by and in breach of that agreement. If these criteria are met, the court will then consider various factors in exercising its discretion as to whether to grant the injunction. These include:

• the risk of injustice caused by inconsistent decisions involving a third party;
• any delay by the applicant in seeking injunctive relief;
• whether the applicant has voluntarily submitted to the jurisdiction of the foreign court; and
• the risk of a party losing security in court proceedings.

A closer look at the cases

VTB v Mejlumyan

The underlying dispute arose out of a series of financing agreements that Mr Mejlumyan’s group of companies entered into with VTB and its nominees. The anti-suit injunction sought by VTB related to one set of proceedings Mr Mejlumyan had brought in Armenia seeking to terminate a share pledge agreement that provided for arbitration seated in London, pursuant to the London Court of International Arbitration (LCIA) Arbitration Rules.

Mr Mejlumyan asserted that VTB should not be granted the anti-suit injunction on the basis that VTB had excessively delayed seeking injunctive relief in the English court, submitted to the Armenian court, and made unfair presentations to the court about various matters.

Mr Justice Butcher rejected all three arguments.

1. Delay. He acknowledged that there had been delay by VTB but that this was due to the parties’ involvement in another set of court proceedings and an arbitration related to the dispute, as well as a Covid-19-related adjournment of the relevant proceedings. There had been limited progress in the Armenian proceedings, which had not required the parties to commit significant resources. Mr Mejlumyan had also not been prejudiced by the delay.
2. Submission. VTB had served its defence in the Armenian proceedings. However, Mr Justice Butcher noted that this was to meet a procedural deadline and followed VTB’s application to have the proceedings dismissed on jurisdictional grounds. There had been no unequivocal representation by words or conduct that VTB was not taking an objection to the jurisdiction of the Armenian court.
3. Unsatisfactory conduct. Mr Justice Butcher found that VTB had not presented its case in any manner that would have been considered unfair. Mr Mejlumyan asserted that VTB claimed to have become aware of the proceedings when the statement of claim was filed, but it had actually first been notified when the claim was lodged on the Armenian court’s electronic database. Mr Justice Butcher disagreed that there had been any misrepresentation, and accepted VTB’s arguments that it had not initially known the nature of the claim. He was of the view that it would have made no difference to VTB’s application for injunctive relief in any case. VTB had made share transfers but this was not in any way related to the claim. Finally, it had not been dishonest about submitting to the Armenian court.

ZHD v SQO

SQO applied to the Vietnamese court for ZHD’s vessel to be arrested at the discharge port after a problem was identified with its cargo. ZHD was required to apply for a bank guarantee to secure the release of the vessel. SQO subsequently issued proceedings in Vietnam seeking damages, but this was resisted by ZHD on the basis that the bill of lading (endorsed in favour of SQO) stated that any dispute should be referred to ad hoc arbitration in London. ZHD applied to the English court to restrain the Vietnamese proceedings and (a few months later) commenced arbitration proceedings.

Mr Justice Calver found a “high degree of probability” that an arbitration agreement had been established. English law governed the bill of lading, which referred to a sub-charter containing a London arbitration clause. As a matter of English law, the arbitration agreement contained in the sub-charter was incorporated into a contract of carriage such as a bill of lading. By pursuing proceedings in Vietnam, SQO had acted in breach of the arbitration agreement.

In exercising the court’s discretion as to whether to grant an anti-suit injunction, Mr Justice Calver held as follows:

1. Delay. There had been a delay of three to four months in bringing the application, given that ZHD had elected to contest the Vietnamese court’s jurisdiction rather than immediately apply to the English court for an anti-suit injunction. Nonetheless, the delay in itself (which the court did not consider to be particularly great, in any event) could not justify a refusal of injunctive relief and was of less importance than the extent to which the foreign proceedings had progressed during the delay, and whether those foreign proceedings had been allowed to progress on the merits, which would have been a “powerful factor” against the grant of the injunction. However, Mr Justice Calver noted that the Vietnamese proceedings had not progressed very far (and “hardly at all” on the merits) and the injunction would result in little waste of the Vietnamese court’s resources.
2. Submission. Although the Vietnamese court had accepted an “enrolment” of the case, this did not mean that it had accepted jurisdiction over the dispute. ZHD had contested jurisdiction on several occasions. Jurisdiction remained a live issue in the Vietnamese proceedings as the judge had asked the parties to supply further information to support her decision-making. Mr Justice Calver noted that even if the Vietnamese court had accepted jurisdiction, this would not necessarily bar the anti-suit injunction, which served to give effect to the parties’ contractual bargain.
3. Limitation. Pursuant to the Hague Rules (also known as the Hague-Visby Rules) incorporated into the bill of lading, the one-year limitation period had run out and SQO would be time-barred from bringing any claim in arbitration. Mr Justice Calver rejected this as a reason not to grant the anti-suit injunction, noting that the time bar was the product of SQO’s own failure to commence an arbitration within the one-year period. This was no fault of ZHD’s.

In addition to an interim injunction restraining the proceedings commenced by SQO in the Vietnamese court, Mr Justice Calver granted a mandatory injunction requiring SQO to take steps to stay those proceedings. This was because ZHD had been placed in a position where is would have to engage the Vietnamese court on the merits of the case or risk losing its ability to challenge that court’s jurisdiction. The mandatory injunction was required to ensure that the relief was effective.

Comments

The judgments highlight the English court’s clear support for arbitration agreements in order to protect the integrity of the parties’ contractual bargain. To this end, as these two cases demonstrate, the courts have adopted a highly pragmatic approach to exercising their discretion. On the question of delay, the actual time period that has elapsed is not the key consideration and the court will have regard to all the facts of the case. In particular, the court will weigh questions of comity, i.e. whether the delay in seeking injunctive relief has materially increased the extent to which such relief would interfere in a foreign court’s process and lead to a waste of significant resources committed by the foreign court. Other factors linked to delay include whether the anti-suit injunction would result in a waste of resources, loss of security or cause prejudice to the respondent.

Likewise, the assessment of whether a party is deemed to have submitted to the foreign court is conducted with regard to the specific circumstances of the case rather than merely whether certain procedural steps have taken place.

Respondents to anti-suit injunctions should take heed of the court’s unwillingness, in ZHD v SQO, to treat the time-bar as a strong reason not to grant relief, as well as its decision to grant both a prohibitory and a mandatory injunction to ensure that relief is effective. It is also noteworthy that the court in ZHD v SQO found that there were “exceptional and special circumstances” to give permission to ZHD for alternative service (by email) of the claim form and documents relating to the application for an injunction, namely that the process under the Hague Convention (to which Vietnam is a signatory) was likely to be time-consuming.

The English court’s pro-arbitration stance assists to cement London’s position as a global arbitration hub. Although both cases involved foreign proceedings in non-EU jurisdictions, it will be interesting to see if the English court more readily grants anti-suit injunctions for proceedings in the courts of EU member states going forward (for cases commencing after 1 January 2021) now that previous restrictions imposed by the Recast Brussels Regulation and case law of the Court of Justice of the EU have fallen away. If the UK is successful in its bid to accede to the Lugano Convention, however, this could change again.

The authors would like to thank Maxie Chopard, trainee solicitor at CMS, for her assistance with the preparation of this article.