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"Reflections On The Use Of Anti-Suit Injunctions In International Arbitration" by Vikram Sharma


Reflections On The Use Of Anti-Suit Injunctions In International Arbitration
by Vikram Sharma

Introduction

The use of anti-suit injunctions is a recent trend that focuses on the issue of jurisdiction. In brief, it is a protective device in conflicts of laws matters by which the other party can be enjoined from commencing or continuing a proceeding in a different forum. Over time, the use of these injunctions in international arbitration has become quite controversial. Some say that these injunctions serve only to impede the ability of the proceedings to run to conclusion. On the other hand, other observers state that these injunctions are meant to protect the process.

This article presents a number of recent cases in which anti-suit injunctions have played a prominent role. Ultimately, a review of these cases demonstrates that the use of anti-suit injunctions does not produce positive results. Instead, these injunctions tend to result in lengthy -- and often unnecessary -- procedural delays. Worst of all, these anti-suit injunctions interfere with the international arbitration process, running contrary to the very purpose for which international arbitrations were created.

The following recent cases illustrate judicial views of anti-suit injunctions:

In Hubco v. WAPDA, the Pakistan Supreme Court rejected the arbitration clause in an agreement which stated that if any dispute arose, the same shall be referred to the ICC in London. See Louise Barrington, Hubco v. Wapda: Pakistan Top Court Rejects Modern Arbitration, 11 AM. REV. INT'L ARB. 385 (2000). A similar mistrust towards arbitration and promotion of the anti-suit injunction approach was displayed again by the Pakistani court in SGS v. Pakistan, an investment arbitration case, in which the high court held that the bilateral treaty between the Swiss corporation did not bind Pakistan. 19 ARB. INT'L 179(2003); see also Emmanuel Gaillard, Investment Treaty Arbitration and Jurisdiction Over Contract Claims -- The SGS Cases Considered, http://www.shearman.com/ia_040308_10/.

In the context of arbitration, anti-suit injunctions can be sought by the losing parties as a means to obstruct the enforcement of the arbitral award. One of the most spectacular illustrations of this strategy is found in KBC v. PERTAMINA, in which both the American courts and Indonesian courts involved with the cates ordered anti-suit injunctions. See 335 F.3d 357. The dispute arose in regard to the construction and development of a geothermal plant in Indonesia. Id. at 360. After the project was suspended by the Indonesian government, KBC filed action in Switzerland pursuant to the Arbitral Rules of the United Nations Commission on International Trade Law. Id. The arbitral tribunal ordered Pertamina to pay U.S. $260 million in damages. Id. at 361.

However, the defendant in this case filed an injunction to prohibit the KBC from enforcing the award in abroad. Id. The Jakarta court then annulled the award on the grounds that it was illegal or contrary to the Indonesian arbitration law and issued a permanent injunction to forbidding KBC from enforcing the award in abroad. Id. On the other hand, the federal district court in Texas that heard this case granted recognition to the award issued by an arbitral tribunal in Switzerland. See 335 F.3d at 362. And after that, the U.S. federal district court granted an order demanding that Pertamina suspend its request for an injunction in Indonesia. See id.

This case represents the counterproductive nature of anti-suit injunctions rendered by both the Indonesian courts and the U.S. district court. The decision of the U.S. court had little effect in Indonesia, as the same way the decision of Indonesian court would not have been effect in U.S. It raises the issue that the anti-suit injunctions are violating the nature of the arbitral process. This case also emphasizes the issue of judicial intervention in the arbitration process. It cannot be said truly, that anti-suit injunction is not a productive but on the other hand it depends upon the party's intention that are using this protective device.

Indian court decisions pertaining to anti-suit injunctions:

In Moser baer India v. Koninklijke Philips Electronics, the plaintiff filed an anti-suit injunction to prohibit the defendants from initiating the proceedings against the plaintiff an plaintiff in a foreign court and from continuing with the suit. See 2008 (1) CTLJ 421 Del; See also Koninklijke Philips Electronics NV v. Moser Baer India Ltd., filed by the Defendant No. 1 at The Hague, The Netherlands, as well as from continuing with the third party claim and counter claim filed by the Defendant No. 1 against, inter alia, the plaintiff in the complaint, filed by Imation Corporation before the Minnesota District Court, U.S.A. In brief, the plaintiff requested an anti-suit injunction against the defendants (more particularly against Defendant No. 1) on the strength of interim orders passed by this Court in the plaintiff's earlier suit and on the pleas of forum non conveniens and that the proceeding before the foreign courts are vexatious and oppressive to the plaintiff.

The defendants have resisted this application on the grounds that this court lacks territorial jurisdiction and that the conditions precedent for the grant of an anti-suit injunction as determined by the Supreme Court of India in Modi Entertainment Network v. W.S.G. Cricket Pte Ltd. have not been fulfilled. See Appeal (civil) 422 of 2003; 2003 A.I.R. SCW 733 (2003). The plaintiff manufactures and sells optical and magnetic data storage media products. The defendants are alleged to be the Indian "arms" of the subsidiaries of Defendant No. 1, with whom the plaintiff entered into six Disc Patent License Agreements (DPLAs). The DPLAs were for 10 years from their respective effective dates and contained similar terms with some differences regarding to the amount of royalty payable by the plaintiff to the defendant No. 1 in respect of each type of disc.

Consequently, the plaintiff was liable to pay royalty to Defendant No. 1 with respect of each disc manufactured and sold by it under the DPLAs. The agreement was held to be governed by the law of the Netherlands. Any dispute arising from the agreement was ordered to be submitted to the courts of The Hague. The defendants, however, objected the territorial jurisdiction of Indian court. The High Court of Delhi held that there is no waiver of jurisdiction clause and dismissed the application filed by the plaintiff for injunction. See AIR, INDIA 2008.

In Bharat Aluminum Company Limited vs. Glencore A G , the plaintiff filed an injunction to restrain the respondents from commencing and/or pursuing any proceedings anywhere (except in India), including any court in England which would have the effect of preventing the petitioner from commencing and pursuing any proceedings in India to set aside the award passed by the Arbitral Tribunal. See WP 227 No. 3447 of 2010; 10 Civ. 5251 (SAS), N.Y.L.J. 1202474413491, at *1 (S.D.N.Y. 2010). The American federal district court judge dismissed the application filed under Order 39 Rule 3 of the Code on the ground that an alternative remedy was available to the petitioner and there were no other grounds for restraining the respondent without providing opportunity of hearing to the respondent. See id. The American court held that documents reveal that the parties have chosen the forum of arbitration and proceeding relating to such arbitration at England. See id. In regard to the issue of anti-suit injunctions, the courts are required to consider the principle of "comity"(i.e., respect for the court in which the commencement or continuance of action/proceeding is sought to be restrained). Id. Consequently, the court dismissed the petition filed by the plaintiff under Article 227 of the constitution of India. Id.

In JSW Steel Ltd. v. JFE Shoji Trade Corporation, the dispute arose when the plaintiff refused to accept the final shipment of promised goods and, in connection with the same, Defendant No.1 instituted arbitral proceedings before the International Chamber of Commerce, International Court of Arbitration, in London. See APPEAL NO. 584 of 2009 IN NOTICE OF MOTION NO. 3461 OF 2009 IN SUIT NO. 1845 OF 2009. In the suit, the plaintiff requested an injunction that Defendant No.1 be restrained from proceeding with the arbitration in London, claiming that the issue involved in the suit as well as the issue before the Arbitral Tribunal are overlapping and part of the dispute is common. The judge rejected this request, determining that such types of anti-suit injunction can be granted only in exceptional cases.

The plaintiff then filed appeal in the High Court. The court stated that in the Act of 1996, there is no such provision for granting such an injunction and even as per the provisions of Section 8 of the Act of 1996, it is provided that during pendency of such application, even proceedings before the Arbitral Tribunal cannot be stayed. Ultimately, the court found that the application for injunction has been filed to delay the proceedings before the arbitral tribunal.

With the case of Union Of India vs. Videocon Industries Ltd., an anti-suit injunction was sought by the plaintiff restraining the defendant from pursuing a claim filed in the High Court of Justice, Queen's Bench Division, Commercial Court, London. See CIVIL APPEAL NO.4269 OF 2011 [Unreported Judgment, 2012]. The Supreme Court of India held that the defendant's act of initiating the proceedings in London during the pendency of the special leave petition was unconscionable, vexatious, and oppressive, and an abuse of the process of law. The plaintiff would be put through the inconvenience and uncertainty of litigating more than once on the same issue at a prohibitively high cost in a foreign country. Under this line of reasoning, the court restrained the defendant from pursuing the claim at the High Court of Justice, Queen's Bench Division, Commercial Court, in London against the plaintiff.

Conclusion

The approach espoused by the courts in the above precedents shows that the anti-suit injunctions are inefficient and detrimental to the international arbitration process or to its effectiveness. In some countries, parties may be tempted to retaliate against the targeted party by using an injunction to prevent that party from going forward. The approach used by the American courts in such situations tends to focus on the balance of domestic judicial interests regarding the prevention of vexatious or oppressive international comity. Regarding the international principle of comity, the courts observed that the doctrine of international comity contains a rule of local restraint, which guides courts reasonably to restrict the extraterritorial application of sovereign power.

The decision in regard to the anti-suit injunction raised a debatable issue that "whether anti-suit injunctions including anti-anti-injunctions are justified when they are issued in order to prevent international arbitration or whether judicial self-restraint is a virtue in all circumstances". According to Indian Courts, the very purpose of anti-suit injunction is to frustrate the arbitral process and delay the proceedings before the arbitral tribunal. As stated by American courts, conventions allow for some degree of forum shopping and efficacy of the same depends upon the good faith of its sovereign signatories. It means it all depends upon the country. Anti-suit injunction is response to counter a court order aimed at obstructing arbitral proceedings or the enforcement of an arbitral award. Anti-suit injunctions invalidate the very purpose of arbitral process in which the parties themselves give consent to refer the disputes which may arise to arbitral panel in good faith.

It is also true that the anti-suit injunction is a weapon usually used by the losing side. To curb this problem completely, each nation should decide on the basis of their own standards of public policy that whether or not to recognize and enforce foreign arbitral awards.

Of course, local courts and national courts should not be deciding the jurisdictional issues of the arbitral tribunal. Therefore, there should be only a low level of interference in the arbitration. Also, there is a need to limit the possibility of anti-suit injunctions. There should be some limitation on the discretion of the national courts to save the very purpose for which injunctions were created in the first place.

Vikram Sharma was born in Chandigarh, India, and attended law school at UILS, Panjab University (a top-ten university in India). From 2005 to 2010, he served as a member of a national-based NGO. In 2010, he was selected to represent his law school at the Harvard Model United Nations in Boston. In August 2011, Vikram came to New York to seek an advanced degree in Corporate Law, where he also interned for the District Attorney's Office in Bronx, N.Y. Vikram is also a talented boxer, winning several Indian titles.

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This page contains a single entry from the blog posted on August 4, 2012 8:27 AM.

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