Collusive foreign proceedings were vexatious and oppressive (Court of Appeal)

Practical Law UK Legal Update 7-519-6885 (Approx. 8 pages)

Collusive foreign proceedings were vexatious and oppressive (Court of Appeal)

by PLC Arbitration

Background

Anti-suit injunctions restraining breach of arbitration agreements

The English court has jurisdiction to grant interim and final injunctive relief restraining proceedings abroad that are brought in breach of an arbitration agreement. The court may grant injunctive relief where:

It is established that the foreign proceedings infringe the claimant's contractual rights under the arbitration clause.
Less frequently, the foreign proceedings are vexatious and oppressive.

For further discussion of the principles applied by the English court and the circumstances in which injunctive relief may be available, see Practice note, Remedies for breach of the arbitration agreement: anti-suit injunctions in the English courts.

Service out of the jurisdiction

An arbitration claim form seeking an anti-suit injunction may be served out of the jurisdiction with the permission of the court under CPR 62.5(1). In Vale do Rio Doce Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 Lloyd's Rep 1, Thomas J held that the provisions governing the service of an arbitration claim form out of the jurisdiction applied only to applications made between the parties to the arbitration agreement. However, subsequent authority has recognised that the court may make orders against third parties under section 44 of the Arbitration Act 1996. In Tedcom Finance Ltd v Vetabet Holdings Ltd [2011] EWCA Civ 191, the Court of Appeal held that it was arguable that permission to serve section 44 proceedings on a third party could be granted under CPR 62.5(1)(b).

Alternatively, permission to serve an arbitration claim form out of the jurisdiction may be granted under CPR 6.36 if:

The claim falls within one of a number of "gateways" listed in Practice Direction (PD) 6B.3.1.
The claim has a reasonable prospect of success (CPR 6.37(1)(b)).
England is the proper place to bring the claim (CPR 6.37(3)).

The PD 6B.3.1 gateways include the following:

"(3) A claim is made against a person ("the defendant") on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –

(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and

(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim...

(6) A claim is made in respect of a contract where the contract –...

(c) is governed by English law."

In the context of arbitration claims concerning arbitrations that are seated within the jurisdiction, it is common practice for the court to permit service on a party's solicitor who has acted for that party in the arbitration (see PD 62.4.3.1 and the obiter comments of Tomlinson J in Kyrgyz Republic v Finrep GmbH [2006] 2 CLC 402).

For further information about service out of the jurisdiction, see Practice notes, Service of the claim form and other documents: outside the jurisdiction and Arbitration claims: applications to the English court: How to serve out of the jurisdiction.

Alternative service

CPR 6.15 provides:

"(1) Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.

(2) On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service."

In Bayat Telephone Systems International Inc and others v Cecil and others [2011] EWCA Civ 135, the Court of Appeal indicated that CPR 6.15 empowered the court to order service out of the jurisdiction by alternative methods, though this should be regarded as exceptional, to be permitted in special circumstances only. For example, convenience or a desire to avoid delays will not generally justify such an order. For further discussion, see Legal update, Significance of limitation defence when extension of time to serve claim form sought (Court of Appeal).

Facts

The dispute between the parties arose in connection with a guarantee provided by the first defendant (D1) to the claimant bank. The guarantee was governed by English law and provided for disputes to be referred to LCIA arbitration, with the claimant having the option to refer disputes to the English court. The arbitration clause required the arbitrator to be an English QC. If the option to refer to court was exercised, the guarantee stipulated that D1's English solicitors, BC, were appointed as its agents for service.

Disputes arose and the claimant commenced arbitration in London against D1. After the commencement of arbitral proceedings, the parties agreed to vary the arbitration agreement by:

Providing for the appointment of X (not an English QC) as arbitrator.
"Repealing" the provisions of the guarantee that dealt with the option to litigate, including the stipulation that BC was appointed as agent for service of process.

Shortly after the commencement of the London arbitration, A, the trust manager of a small shareholding in D1, commenced proceedings before the Moscow Arbitrazh Court, seeking an order invalidating the guarantee under Russian companies legislation.

The claimant sought an anti-suit injunction restraining D1 and A from pursuing the Russian proceedings. The claimant overlooked the fact that the service of process clause in the guarantee had been terminated and it mistakenly served the claim form on D1 by delivering it to BC's offices in London.

Permission to serve the claim form on A in Moscow was granted on various bases, including the erroneous assumption that D1 had been validly served (via its solicitors) within the jurisdiction and that A was a "necessary and proper party" for the purposes of PD 6B.3.1(3).

There followed two orders that formed the subject of A's current appeal:

Blair J's order of 24 November 2011, dismissing challenges to jurisdiction and granting anti-suit relief. (For further discussion, see Legal update, Service of arbitration claim form out of jurisdiction on related company (Commercial Court).)
Teare J's order of 20 April 2012 declaring that the claim form had been validly served on A by reason of delivery to BC's offices in London. (For further discussion, see Legal update, Risk of delaying trial was a "good reason" to retrospectively authorise alternative service (Commercial Court).)

Decision

The Court of Appeal dismissed A's appeals.

Anti-suit relief

The first question was whether the claimant had established a serious issue to be tried. It was not suggested that the arbitration agreement was not valid or binding. However, this was a relatively unusual case because an anti-suit injunction had been granted against a party, A, who was not bound by the relevant arbitration clause. Anti-suit relief should not generally be granted against such a non-party on the sole basis that the issues in the proposed litigation are already the subject of arbitration proceedings involving an associated company.

However, the grant of anti-suit relief was justified in this case on the basis that the Russian proceedings were vexatious and oppressive because of the alleged collusion of A with D1 in bringing and prosecuting the Russian proceedings. Although it was accepted that A was not the alter ego of D1, the claimant was entitled to ask the court to infer from the evidence that both companies were controlled by the same individual, and that the decisions relating to the arbitration and the Russian proceedings were co-ordinated decisions made by that same individual. On the evidence, there was a serious issue to be tried as to whether or not the Russian proceedings were collusive.

Furthermore,

Although the claimant had delayed in seeking injunctive relief, Blair J had not made any error in relation to the primary facts. Blair J's conclusion that the delay was not enough to preclude the bringing of the claim was one that was reasonably open to him.
Considerations of comity would not preclude the court from intervening. Although it was a "strong thing" to prevent a party from pursuing proceedings in its foreign court when the court was already seised of the claim, particularly where the claimant had delayed in applying for an injunction, this could not of itself outweigh the claimant's right to anti-suit relief.

Jurisdiction

The principal issue on appeal was whether the claimant could establish that the arbitration claim form "had been or would be" served on D1 when it obtained permission to serve A out of the jurisdiction as a necessary or proper party under PD 6B3.1(3). The application had proceeded on the erroneous assumption that D1 could be served in the jurisdiction pursuant to the (now repealed) contractual service of process clause that allowed service on the offices of BC in London.

However, in relation to arbitrations seated within the jurisdiction, it was the almost invariable practice to allow service of the arbitration claim form on the relevant party's solicitor within the jurisdiction. Had the court been asked, it would undoubtedly have granted permission to serve D1 on its solicitor within the jurisdiction. On any view, service on D1 would be effected: the error as to the continued applicability of the service of process clause went to where service would be effected but not as to whether service would be effected at all. It followed that the requirement of PD 6B3.1(3) was satisfied. This meant that it was unnecessary to address the issues relating to CPR 62.5, which were "not straightforward".

Finally, since the application concerned alleged collusion to subvert a valid English arbitration agreement, it was obvious that the English court was the most appropriate forum for the claim to be heard.

Service by alternative means

The appeal against Teare J's order was also dismissed. The judge had taken into account that good reason is required to justify an order for service by alternative means against a foreign defendant (Bayat), and that retrospective validation of such service requires even stronger grounds and a more exceptional case.

Comment

The case is an interesting and relatively unusual example of anti-suit relief being granted against a non-party to the arbitration clause, on the basis that the foreign proceedings are vexatious and oppressive. In this case, the facts relied on were alleged collusion in the bringing of the foreign proceedings in an attempt to subvert the English arbitration agreement.

It should be noted, however, that the Court of Appeal was very careful to state that it will not be enough to show merely that the foreign proceedings involve a company related to the party bound by the arbitration clause. A "good collateral ground" must be demonstrated in addition. Here, the evidence entitled the court to infer, for the purposes of the injunctive relief, that collusion had occurred.

The court took a similarly robust approach to service out on a necessary and proper party. Although the application had proceeded on an erroneous basis (that D1 could be served pursuant to the defunct service of process clause), the court was willing to assume that, in accordance with usual practice, D1 could have been (and would in fact be) served via its solicitors in London. In reaching its decision, the court considered a passage from Briggs, Civil Jurisdiction and Judgment (Informa Maritime & Transport, 5th ed, 2009), para 4.57, which states that

"...until permission is obtained, it cannot be said...that D1 will be served".

The court noted that, in most cases "where there is a real question as to whether permission to serve out will be granted" this was correct. However, where (as here) it was the "invariable practice" to allow service on D1 within the jurisdiction, the requirements of PD 6B3.1(3) would be satisfied. It is not clear how far this approach (which looks to the factual inevitability or likelihood of D1 being served, rather than to the technical question of whether the claimant is entitled to serve D1) can be extended.

Finally, practitioners should note that the Court of Appeal declined to comment on the difficult issues that arise under CPR 62.5, preferring to base its judgment on CPR 6.36 and PD 6B. The question of whether permission to serve out of the jurisdiction on a third party (that is, a party not bound contractually by the relevant arbitration agreement) can be granted under CPR 62.5 therefore remains subject to some doubt. Practitioners should include an application under CPR 6.36 in such cases.

Case

Joint Stock Asset Management Company "Ingosstrakh Investments" v BNP Paribas SA [2012] EWCA Civ 644 (24 May 2012).

Collusive foreign proceedings were vexatious and oppressive (Court of Appeal) | Practical Law