REUTERS | Yiannis Kourtoglou

Nori Holdings: Commercial Court rules on anti-suit injunctions, gives guidance on arbitrability and upholds West Tankers as good law

In Nori Holdings Ltd v Public Joint-Stock Co Bank Otkritie Financial Corporation, the claimants’ application for a final anti-suit injunction to restrain proceedings in Russia and Cyprus met with mixed success. While the court was willing to grant the anti-suit injunction to restrain Russian court proceedings, it refused to do the same in relation to proceedings in Cyprus, holding that the Court of Justice of the European Union’s (CJEU’s) judgment in West Tankers, on so-called intra-EU anti-suit injunctions, remained good law.

Court proceedings commenced challenging debt restructuring

The underlying dispute in this case related to the termination of certain loan and pledge agreements worth around US $500 million and entered into between the claimants and the defendant bank (the bank). Most of the pledge agreements and the pledge termination agreements contained dispute resolution clauses providing for arbitration seated in London under the LCIA rules, with the applicable law being Cypriot. The last pledge agreement and the loan agreements were all subject to the jurisdiction of the Moscow Arbitrazh Court. Post-termination, the bank purchased US $600 million worth of bonds issued by a company in the claimants’ group. The effect of this, as summarised by Males J in the English Commercial Court, was “to replace the Bank’s short-term loans secured by pledges of shares in a company which owned valuable Moscow real estate with long-term unsecured bonds”. The claimants stated that this was a legitimate commercial restructuring which would provide the bank with urgently needed liquidity while the bank claimed that it had been defrauded and the bonds were worthless.

Shortly after the restructuring, a temporary administrator was appointed for the bank. The administrator commenced proceedings on behalf of the bank in the Moscow court seeking to invalidate the restructuring, and to reinstate the loan and pledge agreements. The administrator relied, among other things, on a provision of Russian insolvency law, which could only be invoked by a temporary administrator and was similar to an English law claim to set aside a transaction at an undervalue. The bank also commenced proceedings in Cypriot courts to annul the restructuring, claiming that the transaction was fraudulent. The Cypriot proceedings duplicated the relief sought in the Russian proceedings but did not depend on any insolvency-related issues.

The claimants commenced proceedings before the English Commercial Court, seeking a final anti-suit injunction to restrain the Russian and Cypriot proceedings against them, arguing that those proceedings constituted breaches of the arbitration clauses in the pledge and pledge termination agreements. The claimants had also commenced ten arbitrations under these agreements, seeking declarations that the agreements had been validly terminated. In the arbitrations, the claimants also sought an anti-suit injunction similar to the one sought from the Commercial Court. It was common ground that the Russian and Cypriot proceedings against parties other than the claimants would continue, even if an anti-suit injunction was granted against the bank.

As a preliminary point, the court dismissed the bank’s contention that the availability of anti-suit relief from the arbitrators was a reason for the court to refuse an injunction, or to grant only a limited injunction, until such time as the arbitrators determined the applications to them. Males J reiterated the principle laid down by the Supreme Court in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC that, where court proceedings are brought in breach of an arbitration agreement, it would generally be appropriate to grant an anti-suit injunction pursuant to section 37 of the Senior Courts Act 1981, unless there are strong reasons not to do so.

English law does not recognise presumption excluding claims by liquidator from the scope of an arbitration clause

The bank argued that an anti-suit injunction in respect of the Russian proceedings should be refused because the claim before the Russian proceedings to set aside the restructuring because of unequal consideration was not within the scope of the arbitration agreements or, alternatively, was not arbitrable.

Males J rejected the bank’s proposition, made in reliance on a decision of the Singapore Court of Appeal in Larsen Oil & Gas Pt Ltd v Petroprod Ltd, that there is a presumption that arbitration clauses do not extend to claims made by a liquidator in insolvency proceedings. Instead, the Court applied the English Court of Appeal’s approach in Fulham Football Club (1987) Ltd v Richards. It held that, “in the absence of any statutory restriction or rule of public policy” restricting the types of dispute parties may submit to arbitration, a widely-drafted arbitration clause should be construed to mean what it says, and it would not be appropriate to imply a limitation (for example, that that it did not extend to insolvency claims) into that clause.

As to arbitrability, the court noted that the parties’ dispute was a straightforward disagreement as to whether the restructuring constituted a fraud and no remedy that could not be granted by the tribunal (such as a winding up order) had been sought. It therefore rejected the bank’s submission that the dispute was not arbitrable.

In deciding that there were no strong reasons against granting the anti-suit injunction, Males J distinguished arbitration agreements from exclusive jurisdiction clauses. He noted that, while the court has a discretion regarding enforcement of the latter and may take account of factors such as forum non conveniens, when it came to arbitration, a stay under section 9 of the English Arbitration Act 1996 was mandatory, however inconvenient that may be and no matter whether the proceedings would continue against other parties. Even though the Russian (and, in fact, Cypriot) proceedings would continue against parties other than the claimants, the parties’ agreement to arbitrate was the “decisive factor” and there were no strong reasons to refuse the injunction restraining the Russian proceedings.

Still no anti-suit injunctions within EU despite Brussels Recast

However, the issue of the Cypriot proceedings was rather more complicated. The bank did not deny that the Cypriot proceedings constituted a breach of the arbitration clause. Rather, it contended that the CJEU’s decision in West Tankers meant the Commercial Court could not issue an anti-suit injunction.

In West Tankers, the CJEU ruled that an anti-suit injunction ordered by a court of an EU member state to restrain legal proceedings in the jurisdiction of another EU member state was incompatible with the original Brussels Regulation. The Brussels Regulation included the exclusive right for the member state court first seised of a case to decide for itself whether it had jurisdiction. While anti-suit injunctions are not within the scope of the Regulation per se, they undermine its effectiveness. This was re-affirmed by the CJEU in Gazprom(Case C-536/13).

The question before the English Commercial Court was whether West Tankers remained good law in light of the Recast Brussels Regulation, particularly Recital 12.

In Males J’s view, the Recast Regulation gave effect to Recital 12 through Articles 1.2(d) and 73.2, which say, respectively, that it excludes arbitration from its scope of application and does not affect the application of the New York Convention. A court with jurisdiction under the Recast Regulation should apply Article II(3) of the New York Convention to determine whether to exercise jurisdiction or stay proceedings in favour of arbitration. If “the EU legislature intended to reverse the West Tankers decision [through the Recast Regulation], it chose an odd way in which to do so”. Males J also rejected Advocate General Wathelet’s opinion in Gazprom, which came to the opposite conclusion, as “fundamentally flawed”, also noting that the CJEU in Gazprom has plainly not adopted the Advocate General’s Opinion. The Commercial Court concluded that West Tankers remained an authoritative statement of EU law and thus it had no jurisdiction to grant an anti-suit injunction in respect of the Cypriot proceedings. The court reiterated that the Cypriot court may itself stay the proceedings against the claimants pursuant to Article II (3) of the New York Convention, but that was a decision for the Cypriot court.

Permission to appeal the decision was refused.

What can parties do in the absence of anti-suit injunctions?

This means that, for now, the English courts remain unable to grant anti-suit injunctions restraining recalcitrant parties from commencing proceedings in the courts of another EU member state in breach of an arbitration clause.

While refusing the anti-suit injunction when it involved another EU member state court, the Commercial Court noted that the arbitrators could provide similar relief. If such relief is sought, it should be sought as a partial award, rather than an order, allowing a party to seek to enforce under the New York Convention. On the basis of the decision in The Alexandros T, a court could also order indemnity or make an award of damages further to proceedings in breach of an arbitration agreement. According to Males J, these remedies would not contravene the Recast Regulation.

It remains to be seen whether Brexit will have any impact on the continuing application of West Tankers. It is at least possible that, once the UK leaves the EU, there should no longer be an EU-law limitation on the English courts restraining parties from commencing proceedings in an EU member state court in breach of an arbitration agreement as a dilatory tactic. This will, of course, depend on the terms upon which the UK ultimately leaves the EU, including any transition deal.

 

For further information on the English Commercial Court’s decision in Nori Holdings Ltd v Public Joint-Stock Co Bank Otkritie Financial Corporation, see here.

Allen & Overy Shreya Aren

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