Protection of Jurisdiction by Arbitrators

International Commercial Arbitration Austrian/Polish Twin Conference Warsaw 17 June 2011

„ANTI-SUIT“ - AN UNCERTAIN POSITION

• Little precedent/experience in international commercial arbitration • An „oddity“ of the Anglo – Amercian legal system • No relevance to international commercial arbitration • A menace • A tactical sideshow with little practical importance • Interference with national court beyond authority of an arbitrator ?

• Sovereignty & International Comity 2 of 20

„ANTI-SUIT“ - A FLAWED APPROACH

• National jurisprudence and thinking „infect“ analysis • Domestic courts act within confines of: – Sovereignty & International comity – Rigid & limited civil procedure rules – Territorial limits – Doctrines concerning allocation of jurisdiction – Thus: reluctance of tribuals to grant measures protecting juridiction 3 of 20

JURISDICTION PROTECTION MEASURES

• Arbitrators are free to act more creatively • „Anti-suit“ forms of relief more appropriate in international arbitration • Measures are

ad personam

• Not directed against court or judge • Directed against obstructing party (who is in breach of arbitration agreement) • Jettison unnecessary „court baggage“ 4 of 20

JURISDICTIONAL BASIS (1)

• Tribunal’s jurisdiction to sanction violations of arbitration agreement based on “

competence – competence

” Jurisdiction and available remedies may depend upon law governing the arbitration agreement (not all such laws will allow the kind of relief requested) “

Competence-competence

” still remains aspirational in many jurisdictions once arbitral tribunal has ruled on its jurisdiction, “competence competence” phase is over, and then?

5 of 20

JURISDICTIONAL BASIS (2)

• Tribunal’s power to take measures to avoid aggravation of dispute/ protect effectiveness of the award not dependent upon law governing the arbitration agreement (and the remedies available for breach of contract) depends primarily upon the

lex arbitri

(likely to be far more flexible) does not depend upon the

prima facie

approach to arbitral jurisdiction adopted by domestic courts (see Jurisdictional Basis (1) 6 of 20

JURISDICTIONAL BASIS (3)

• Tribunal’s power flows from arbitration agreement itself (if broad enough to make it exclusive means to resolve disputes) arbitration clause must be broad enough most broadly worded arbitration clauses will encompass disputes relating to breaches of the arbitration agreement - e.g.

“Any dispute which may arise […] from this agreement[…]

[

Rintin v Domar

] • Tribunal need not “disguise” an “anti-suit” type of remedy as a “provisional measure” • The best/ safest approach 7 of 20

RINTIN v DOMAR

[US Court of Appeals [476 F. 3d 1254 (11th CIR. 2007)] • Arbitration clause:„

Any dispute which may arise from the interpretation, execution or termination of disagreement or from the breach thereof

“ • Tribunal issues „anti-suit“ order against one party • To enforce arbitration agreement: Court orders to termination of domestic law suits • US Appeals Court: • Issue of enforcement of arbitration agreement is “arbitrable” • Arbitration clause broad enough to allow Tribunal to compel performance of arbitration agreement 8 of 20

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ICC Case No. 5650 (Final Award 1989)

• African State v. US company (and others) • State interfered with arbitration through its domestic courts (interference withdrawn during arbitration) • Tribunal

obiter

: “…..

Claimant would be entitled to have the lawsuit terminated in favour of the arbitration proceedings

”

10 of 20

IDR Rules Partial Award of 10 October 2002

[ unpublished ] Tribunal held: • By initiating certain legal actions in Venezuela, Respondent had disregarded the arbitration clauses set out in the Contract Respondent must withdraw und desist from continuing legal action on the merits • Tribunal issues anti-suit order: – Respondent to „

desist and withdraw from the lawsuit ….. before the Caracas 10th Court of First Instance […] and injunctive relief obtained[…]

11 of 20

ICC Case No. 8307

(Interim Award 14 May 2001) • Sole arbitrator held: – „

…..the agreement to arbitrate implies that the parties have renounced to submit to judicial courts the disputes envisaged by the a rbitration clause

.“ – „

It is not contested that an arbitrator has the power to order the parties to comply with their contractual committments. The agreement to arbitrate being one of them, …..“

• Ordered Respondent to desist from pursuing actions in state courts (should measures to enforce anti-suit order be unsuccessful, parties could seek relief for any damages suffered)

12 of 20

TOKIOS TOKELÉS v UKRAINE

[ Procedural Order No. 1 of 1 July 2003 ] • Principle: Parties to ICSID arbitration must refrain from (i) measures having a prejudicial effect on proceedings or award or which (ii) aggravate or extend the dispute • Ant-suit “recommendation” (= order) that

“….. All Ukrainian authorities had the legal obligation to abstain from, and to suspend and discontinue, any proceedings before any domestic body, whether judicial or other,…..” “….. Both parties shall refrain from, suspend and discontinue, any domestic proceedings, judicial or other, concerning Tokios Tokelés […..] which might prejudice the rendering or implementation of an eventual decision or award of this tribunal or aggravate the existing dispute”

THE “PARADIGM CASE”

1

When Jurisdiction Protection becomes a Must

• Cross boarder transaction (big, complex, politically or economically sensitive) • Choice of international arbitration outside country X to escape partial, politically influenced, hostile domestic courts • Respondent approaches local court in breach of arbitration agreement • Party affected by injunction is subject to the jurisdiction of country X and ignoring injunction is no remedy (risk of criminal sanctions) 1 © [

Toby Landau, “Arbitral Lifelines” 2006

] 13 of 20

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A RECENT CASE

[unpublished, 2011] • Cross-border contract dispute with strong connection to country X (beneficial owners of Respondent influential political figures in country X) • Court system of country X reported as politically influenced. Arbitration outside country X • 100% controlled subsidiary of Respondent in country X commences litigation (to invalidate arbitration clause) and obtains unlawful anti arbitration injunction against Claimant • Subsidiary is not a party to the contract in dispute • Claimant has substantial interest in country X but faces criminal prosecution if anti-arbitration injunction is ignored and arbitration continues

THE PROCEDURAL LANDSCAPE Western Europe

(Respondent)

Arbitration

Western Europe

(Claimant)

100% domestic lawsuit Injunction

Country X

( Subsidiary of Respondent)

• domestic litigation • anti-arbitration injunction against Claimant domestic lawsuit 15 of 20

16 of 20

TELENOR v STORM

[

Telenor v Storm

, U.S. District Court, Southern District of New York, case no: 6 Civ 13157 (GEL)] 100%

Hartlake

50.1%

Alfa Group

100%

Altimo

100%

Alpren

49.9%

Storm

43.5%

Kyivstar

56.5%

Telenor

• • •

ARBITRATION PROTECTION ORDER 2011

[unpublished]

Application to cancel anti-arbitration injunction in court of country X (difficult) 17 of 20 Proceedings to invalidate arbitration clause continue Claimant‘s application for order compelling Respondent to: (i) procure that Subsidiary desists and withdraws from litigation in country X (i) Refrain from commencing (or allowing to commence) or re commence any litigation regarding the contract (except for proceedings admissible at the place of arbitration)

•

ARBITRATION PROTECTION ORDER 2011 (cont‘d)

Arbitral Tribunal found: - Country X subsidiary is Respondent‘s „alter ego“ - Litigation in country X is vexatious (by implication) Tribunal has (i) inherent jurisdiction to sanction violations of arbitration agreement • (ii) Power to take measures to avoid aggravation of dispute and to safeguard effectiveness of the award Tribunal ordered as requested 18 of 20

WHICH TYPE OF DECISION?

•

Injunction (temporary)

– may be enforceable (in some countries) but may not be sufficient •

Procedural order (permanent)

– enforceability?

•

(Interim) Award

– should be enforceable – but: can jurisdiction protection measure be an award?

– Disadvantage: award may be subject to setting aside proceedings or even appeal (on a point of law) 19 of 20

20 of 20

WHICH KIND OF REMEDY?

•

Temporary measure

– e.g. suspension stay of proceedings, discontinuance of proceedings without prejudice (if possible) •

Permanent measure

– e.g. withdrawal of claim with prejudice •

Wording of remedy

: indirect control of litigating subsidiary?

THANK YOU !

BAIER BÖHM

Erhard Böhm Kärntner Ring 12 1010 Vienna Austria Tel: +43 1 515 50 0 email: [email protected]