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Supreme Court Rules on Scope of English Arbitration Clauses

In an important ruling to those engaged in overseas trade, the Supreme Court has underlined the long-standing and well recognised jurisdiction of the English courts to restrain foreign proceedings brought in violation of contractual clauses that dictate that any disputes arising must be arbitrated in London under English law.

The appellant was the owner of a hydroelectric power plant in Kazakhstan and the respondent was the current operator of that plant. A concession agreement between the parties contained a provision that any disputes arising out of, or connected with, that agreement were to be arbitrated in London under International Chamber of Commerce Rules.

Relations between the contracting parties were strained and, in 2004, the Kasakh Supreme Court ruled that the arbitration clause was invalid. In 2009, the appellant brought proceedings against the respondent in Kazakhstan. The respondent’s application to stay those proceedings in reliance on the arbitration clause was dismissed by a Kazakh court on the basis that the clause was a nullity in the light of the 2004 decision.

The respondent soon afterwards issued proceedings in England seeking a declaration that the arbitration clause was valid and enforceable and an anti-suit injunction restraining the appellant from continuing with the Kazakh proceedings. An interim injunction was granted by the Commercial Court.

The appellant subsequently withdrew the request for information which had been the subject of the Kazakh proceedings. However, the respondent remained concerned that the appellant would seek to bring further proceedings in Kazakhstan in breach of the arbitration clause. For that reason, the respondent continued with the English proceedings. The Commercial Court ruled that it was not bound to follow the Kazakh court’s conclusions in relation to the validity of an arbitration clause which was governed by English law and granted both declaratory and final injunctive relief.

The appellant appealed to the Supreme Court on grounds that English courts have no jurisdiction to block the commencement or continuation of legal proceedings brought in a foreign jurisdiction where no arbitral proceedings are in fact on foot or in contemplation. Unanimously dismissing the appeal, however, the Court ruled that nothing in the Arbitration Act 1996 had removed the inherent power of the English courts to intervene in such circumstances.

The court noted that the arbitration clause had given rise to a negative obligation whereby the contracting parties had expressly or impliedly promised to refrain from commencing proceedings in any forum other than England. Independently of the act, the English courts enjoyed a general inherent power to enforce that negative obligation by blocking foreign proceedings brought in breach of an arbitration clause even where arbitral proceedings had not in fact been commenced or proposed.