On 26 November 2019, the Court of Appeal handed down judgment in Minister of Finance (Inc) and another v International Petroleum Investment Company and another. The appeal addressed the ambit of the supportive powers of the English courts over English seated arbitrations, and the proper approach when issues of fact arise for determination both in a court claim invoking that supervisory jurisdiction and a new arbitration.
The case concerns the well-publicised 1MDB scandal, which concerns allegations that billions of dollars were misappropriated as a result of a fraud carried out against 1MDB, a Malaysian state-owned investment fund. The scandal has given rise to civil legal proceedings in a number of jurisdictions, two LCIA arbitrations involving the parties to the dispute before the Court of Appeal, and criminal proceedings in a number of jurisdictions, including ongoing criminal proceedings in Malaysia against its former Prime Minister, Najib Razak.
The English court proceedings comprise a challenge by the Malaysian parties under sections 67 and 68 of the English Arbitration Act 1996 (AA 1996) against a consent award which purported to settle an LCIA arbitration between the Malaysian parties and the Abu Dhabi parties. When the English court proceedings were served on the Abu Dhabi parties, those parties commenced a new LCIA arbitration pursuant to arbitration clauses contained in settlement deeds entered into at the same time that the consent award was made.
The dispute before the Court of Appeal concerned the question of which forum should proceed first. The Abu Dhabi parties had applied for a stay of the court claim under both section 9 of the AA 1996 and the court’s case management powers to permit the arbitration to proceed first. The Malaysian parties resisted the stay and applied for an anti-arbitration injunction to restrain the prosecution of the arbitration proceedings pending resolution of the court claim.
At first instance, Knowles J refused the section 9 stay but granted a stay of the court proceedings under his case management powers, thereby deciding that the arbitration should proceed first. Accordingly, he also refused the Malaysian parties’ application for an anti-arbitration injunction.
The Court of Appeal overturned this decision. It held that the stay of the court proceedings should be lifted and an injunction should be granted to restrain prosecution of the new arbitration, pending resolution of the court claim. In reaching this decision, the Court of Appeal was heavily influenced by the mandatory nature of the limited supervisory jurisdiction afforded to the court under the AA 1996. Pursuant to section 4 of the AA 1996, it is not possible for parties to contract out of that supervisory jurisdiction. On the contrary, by agreeing to a London arbitration in the first place, the parties expressly contracted into the exercise of the court’s supervisory jurisdiction. The Abu Dhabi parties could not, therefore, legitimately complain when the Malaysian parties sought to avail themselves of that jurisdiction.
The Court of Appeal pointed out that the AA 1996 strikes a balance whereby, on the one hand, the objectives of fair and speedy dispute resolution by arbitration are upheld by limiting the circumstances in which the Court may intervene, whilst on the other ensuring that those supervisory safeguards that are required in the public interest are mandatory. The efficacy and reliability of the system of arbitration requires a robust system for ensuring that awards which have been issued without jurisdiction or which have been procured by fraud should be set aside. This is a matter reserved to the courts, and the scheme of the AA 1996 would be undermined if a party could avoid court scrutiny (which may, if the court so decides, involve a public trial) by crafting an arbitration clause designed to cover the very matters falling within the exercise of the court’s supervisory jurisdiction.
As to the anti-arbitration injunction, the Court of Appeal applied the approach set out by Hamblen J in Claxton Engineering Services Ltd v TXN Olaj-es Gazkutato Kft (No 2), whereby a party must show that the arbitration in question either infringes a legal/equitable right or is vexatious, oppressive or unconscionable, in order to be granted an injunction. The Court of Appeal held that both tests were satisfied on the facts of the case. The new arbitration comprised an attempt to infringe the Malaysian parties’ legal right to challenge the consent award under sections 67 and 68 of the AA 1996, and it was vexatious because it was brought as a response and consequence of the Malaysian parties’ attempt to exercise those mandatory rights.