AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC
AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC
English Court of Appeal (Civil Division); Rix, Wilson, & Stanley Burnton LJJ;  EWCA Civ 647, 27 May 2011
Bernard Eder QC and Jessica Wells (instructed by Allen & Overy LLP) for the Claimant/Respondent, AES Ust-Kamenogorsk Hydropower Plant LLP
Antony White QC (instructed by Reed Smith LLP) for the Defendant/Appellant, Ust-Kamenogorsk Hydropower Plant JSC
INTERNATIONAL ARBITRATION: ANTI-SUIT INJUNCTION: BASIS FOR SERVICE OUT OF JURISDICTION: EFFECT OF CIVIL JURISDICTION AND JUDGMENTS ACT 1982: PARTICIPATION IN FOREIGN PROCEEDINGS UNDER PROTEST NOT SUBMISSION TO JURISDICTION
The Court of Appeal upheld (i) a declaration that Ust-Kamenogorsk Hydropower Plant JSC was bound to arbitrate disputes arising out of a Kazak hydropower concession, and (ii) a final anti-suit injunction against Ust-Kamenogorsk Hydropower Plant JSC litigating disputes within the arbitration clause in Kazak courts. The anti-suit injunction was upheld on the basis of the Senior Courts Act 1981, Section 37, despite there being no ongoing or prospective arbitral proceedings. The Court of Appeal further relied on the Civil Jurisdiction and Judgments Act 1982, Section 32, to refuse recognition of an earlier Kazak judgment to the effect that the arbitration agreement was contrary to Kazak public policy and therefore void.
This case note has been contributed by Justin Gan Boon Eng, LLB (Hons) (NUS), an advocate and solicitor of the Singapore Bar
The dispute concerned an English arbitration clause in a Kazak hydropower concession agreement. The owner/defendant/appellant, Ust-Kamenogorsk Hydropower Plant JSC (“Owner”), initiated Kazak proceedings demanding that the operator/claimant/respondent, AES Ust-Kamenogorsk Hydropower Plant LLP (“Operator”), provide additional information about the value of the concession. The Operator sought to dismiss the demand, citing the arbitration clause. On the basis of an earlier Kazak decision finding that the arbitration clause was contrary to Kazak public policy, the Kazak court refused to dismiss the claim. The Operator was therefore forced to defend the Kazak claim on the merits, albeit under protest.
Simultaneously, the Operator commenced English proceedings seeking the declaration and anti-suit injunction mentioned above. It also obtained leave to serve the arbitration claim form on the Owner out of the jurisdiction. Subsequently, the Owner applied to set aside the service and contended that the Operator’s claims were outside the jurisdiction of English courts. By the hearing date for both applications, the Owner’s Kazak claim had been withdrawn and the Operator conceded that it had nothing it wanted to arbitrate.
At first instance, Burton J rejected the Owner’s contentions and granted the declarations and anti-suit injunction sought by the Operator.
Burton J’s decision was upheld. Rix LJ gave the leading judgment, with which Wilson and Stanley Burnton LJJ concurred.
Issue One: Can English courts grant declarations or anti-suit injunctions in aid of arbitration if there are no ongoing or prospective arbitration proceedings?
The parties agreed that Section 44 of the Arbitration Act 1996 (“AA 1996”) applied only if there were ongoing or prospective arbitration proceedings. Rix LJ rejected the Owner’s argument that, since the specific Act (that is, AA 1996) did not provide for the grant of declarations or anti-suit injunctions in such situations, the less specific Senior Courts Act 1981 (“SCA 1981”), Section 37 , could not furnish the court with jurisdiction to do so.
Rix LJ explained that while the Owner’s argument might be true if Section 44 of the AA 1996 applied, on the facts there were no ongoing or prospective arbitration proceedings – so the section simply did not apply on its terms. Rix LJ noted that in such situations the court may decline to assist the applicant, but expressly refused to limit the court’s powers to support arbitration. Further, he recognised that in certain situations a court declaration that the arbitration agreement was binding upon the parties and encompassed the dispute in question would save time and cost. An example would be where one party claims that it did not agree to the arbitration clause, fails to convince the tribunal otherwise, and subsequently applies to court anyway under Sections 67 or 72 of the AA 1996.
Rix LJ was fortified in his conclusion by The Epsilon Rosa,  Lloyds Rep 509, where Steel J granted a final anti-suit injunction in aid of arbitration. On appeal in that case, the Court of Appeal held that in such situations final injunctions could not be granted under the AA 1996, and - by a process of elimination - the jurisdictional basis of Steel J’s decision must have been SCA 1981, Section 37.
The Owner further argued that in the absence of ongoing or prospective arbitration proceedings, there was no substantive interest or right that the declaration or anti-suit injunction could protect. This argument failed – to Rix LJ, the existence of an English arbitration clause was sufficient to constitute an interest despite there being no current or prospective arbitration proceedings.
Issue Two: Can a party which obtained leave to serve its arbitration claim form out of jurisdiction on procedural basis A subsequently rely on a new, alternate procedural basis B?
It will be recalled that the Operator had obtained leave to serve the arbitration claim form out of jurisdiction on the Owner. Leave was obtained via CPR 62.5(1)(b). At trial, the Operator disclaimed reliance on CPR 62.5(1)(b) but argued that leave was rightfully granted by virtue of CPR 62.5(1)(c). Rix LJ agreed – even if there were contrary authority (there was none), he would exercise discretion in the Operator’s favour because the Operator’s claim was always clearly linked to an English arbitration agreement.
Issue Three: Did the trial judge correctly exercise his discretion by refusing to recognise the Kazak decision that the arbitration clause was contrary to Kazak public policy?
It was agreed that by virtue of the Civil Jurisdiction and Judgments Act 1982 (“1982 Act”) , Section 32(1)(a), English courts were not to recognise the earlier Kazak decision as the underlying disputes should have been brought to English arbitration. Two exceptions exist. First, when the arbitration clause is “illegal, void or unenforceable or [incapable of performance]” (Section 32(2)). Second, where the party submitted to Kazak jurisdiction (Section 32(1)(b)-(c)).
In the absence of authority on Section 32(2) of the 1982 Act, Rix LJ concluded from cases balancing English dispute resolution clauses and foreign legislation that English courts would generally enforce the parties’ choice of English dispute resolution clauses over foreign public policy requirements. Moreover, Rix LJ considered that on a plain reading of the arbitration clause in question, the Kazak court was “simply mistaken” in believing that it brought tariff disputes outside Kazak jurisdiction and was therefore contrary to Kazak public policy.
Issue Four: Did the Operator’s participation in Kazak proceedings under protest constitute submission to Kazak jurisdiction, and if so, was the English court bound to recognise the Kazak decision or did it have discretion to do otherwise?
It will be recalled that the Operator was forced to defend the Kazak claim on the merits, albeit under protest. As Kazak law does not recognise protests against jurisdiction, the Owner argued that (i) the Operator had submitted to Kazak jurisdiction, (ii) came under the Section 32(1)(b)-(c) exception in the 1982 Act, (iii) the trial judge had wrongly refused to recognise the Kazak decision, and (iv) therefore the declarations and anti-suit injunction should not have been granted. The argument was rejected.
Rix LJ upheld Burton J’s finding that there was at least a good arguable case that the Operator never submitted to Kazak jurisdiction because it continually protested Kazak jurisdiction despite participating in a full trial on the merits. Such protest must be unequivocal and continued at all stages of the proceedings – should the party’s argument against jurisdiction be rejected, if its subsequent pleadings do not reflect continued protest against the court’s jurisdiction, that party will taken as having completely submitted to jurisdiction.
Rix LJ further considered the position if the Operator had submitted to Kazak jurisdiction. He concluded that the Kazak decision on the validity of the arbitration clause was not binding on an English court and should not be recognised primarily because (i) the Kazak decision was plainly incorrect, (ii) the Operator had always reserved the question of whether the arbitration clause was effective, and (iii) Section 32 of the 1982 Act was intended to ensure that questions of the effectiveness of arbitration clauses and the recognition of foreign decisions on these questions be decided in English courts.
This decision clarifies the appropriate procedure and powers of the court in situations where the protection or enforcement of an arbitration agreement is sought despite there being no ongoing or prospective arbitration proceedings. Its usefulness in this regard may, however, be limited to the case’s unique facts – the situation was probably due to the disputes eventually being referred to ICSID instead (as Rix LJ mentions in passing).
The third and fourth issues re-emphasise the willingness of English courts to protect and enforce arbitration clauses. Most importantly, a party wishing to arbitrate but forced to participate in court proceedings would be well advised to protest continually the court’s jurisdiction in each set of pleadings it files.
Arbitration Act 1996 s.44. Court powers exercisable in support of arbitral proceedings.
(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.
(2) Those matters are—
(a) the taking of the evidence of witnesses;
(b) the preservation of evidence;
(c) making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings—
(i) for the inspection, photographing, preservation, custody or detention of the property, or
(ii) ordering that samples be taken from, or any observation be made of or experiment conducted upon, the property; and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitration;
(d) the sale of any goods the subject of the proceedings;
(e) the granting of an interim injunction or the appointment of a receiver. ....
Senior Courts Act 1981 s.37. Powers of High Court with respect to injunctions and receivers.
(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so….
Civil Jurisdiction and Judgments Act 1982
S.32. Overseas judgments given in proceedings brought in breach of agreement for settlement of disputes.
(1) Subject to the following provisions of this section, a judgment given by a court of an overseas country in any proceedings shall not be recognised or enforced in the United Kingdom if—
(a) the bringing of those proceedings in that court was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country; and
(b) those proceedings were not brought in that court by, or with the agreement of, the person against whom the judgment was given; and
(c) that person did not counterclaim in the proceedings or otherwise submit to the jurisdiction of that court.
(2) Subsection (1) does not apply where the agreement referred to in paragraph (a) of that subsection was illegal, void or unenforceable or was incapable of being performed for reasons not attributable to the fault of the party bringing the proceedings in which the judgment was given. …