Professor Tomasz Siemiątkowski G ŁUCHOWSKI S IEMIĄTKOWSKI Z WARA.

ANTI – SUIT INJUNCTIONS IN SUPPORT OF INTERNATIONAL

ARBITRATION

Professor Tomasz Siemiątkowski

GŁUCHOWSKI SIEMIĄTKOWSKI ZWARA

US Perspective


I. General remarks

II. Anti-suit injunctions to favor arbitration: 1. Anti-suit injunctions ordered by arbitrators 2. Anti-suit injunctions ordered by courts

III. Anti-suit injunctions ordered by courts as remedy in the enforcement of international arbitration agreements: 1. The conservative approach (standard) 2. The liberal approach (standard) 3. The middle-ground approach (standard)

IV. Conclusion


I. General remarks

Anti-suit injunctions as a remedy employed especially by common law courts to prevent parallel proceedings that are considered vexatious or oppressive, and that present a threat to the jurisdiction of the enjoining court.

Civil-law jurisdictions generally find anti-foreign-suit injunctions offensive, even violative of international law.


Can either be granted to favor arbitration which means to preserve the jurisdiction of the arbitral tribunal or to prevent it.

Can be granted by arbitrators, however they have traditionally been issued by courts.

Can be granted at the outset or at the end of the arbitration proceedings.


Anti-suit injunctions which were granted to favor arbitration


“An order of the court requiring the injunction defendant not to commence, or to cease to pursue, or not to advance particular claims within, or to take steps to terminate or suspend, court or arbitration proceedings in a foreign country.”

(Thomas Raphael, The anti-suit injunction 4 (Oxford 2008)


Anti-suit injunctions are warranted by U.S. law: (1) when the foreign court is highly

inconvenient, vexatious or oppressive;

(2) when the foreign suit was filed in violation of a prior and independent obligation not to sure (e.g. when there is a foreign selection clause or an arbitration agreement) and(3) when there exists a threat to the enjoining court`s own jurisdiction or otherwise violates public policy.


Two threshold requirements:

(1) the parties must be the same in both matters, in other words the United States suit and foreign suit must involve the same parties


(2)resolution of the case before the enjoining court must be dispositive of the action to be enjoined, which means that the United States suit and foreign suit must involve the same issues

(2) the foreign action would be vexatious;

Five discretionary factors:

(1) frustration of a policy in the enjoining forum;


(5) adjudications of the same issues in separate actions would result in delay, inconvenience, expense.

(4) the proceedings in the other forum prejudice other equitable considerations or

(3) a threat to the issuing court`s in rem or quasi in rem jurisdiction;

II. Anti-suit injunctions to favor arbitration

1. Anti-suit injunctions ordered by arbitrators


Whether arbitrators have jurisdiction or power to

order anti-suit injunctions?


The parties can determine in the arbitration agreement or in the terms of reference the jurisdictional limits to be exercised by the arbitrators, as well as whether they will or not have power to grant anti-suit injunctions.


If the parties fail to address these issues in the arbitration agreement or in the terms of reference?The arbitrators should look to the rules of arbitration of the institution conducting the arbitration proceedingsand/or into the lex arbitri.


(1) Neither the New York Convention nor the Inter American Convention on International Commercial Arbitration (“Panama Convention”) addresses the issue of whether arbitrators have power to grant anti -

suit injunctions.


(2) The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (“Washington Convention”) also does not expressly refer to anti-suit injunctions.

Art. 47 :“Except as the parties otherwise agree, the Tribunal may, if it

considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.”


The Uncitral Model Law on International Commercial Arbitration (“Uncitral”) also does not specifically address the issue

Article 17 (2) (b) sets forth that: Power of arbitral tribunal to order interim measures (17) an interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to (2) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself (b).


The ICC Rules of Arbitration are also silent on this matter, although they include a Kompetenz-Kompetenz provision that states that, “any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself” (Article 6.2), and a provision allowing the Arbitral Tribunal to “order any interim or conservatory measure it deems appropriate” (Article 23.1).


Similarly, under the Commercial Rules of Arbitration of the American Arbitration Association, rule 7(a) establishes that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement,” and Rule 34 (a) sets forth that “The arbitrator may take whatever interim measures he or she deems necessary, including injunctive relief and measures for the protection or conservation of property and disposition of perishable goods.”



“Provisional measures are appropriate to preserve the exclusivity of ICSID arbitration to the exclusion of local administrative or judicial remedies as prescribed in Art. 26 of the ICSID Convention. They are also appropriate to prevent parties from taking measures capable of having a prejudicial effect on the rendering or implementation of an eventual award or which might aggravate or extend the dispute or render its resolution more difficult”.

(2) Plama Consortium Limited v. Republic of Bulgaria, ICISD arbitration 2005, although the arbitral tribunal denied the anti-suit injunction requested by the claimant, it stated the following regarding the possibility of ICSID tribunals issuing anti-suit injunction:

(1) Tokios Tokelés v. Ukraine, ICSID arbitration, 2003,

Conclusion:

In spite of the silence or of the main sources of rules of international commercial arbitration, majority of scholars and many arbitration decisions, confirm that arbitrators have jurisdiction and power to issue anti-suit injunctions.


Primarily, it should be remembered that international anti-suit injunctions are exceptional remedies that should be “used sparingly” and granted only “with care and great restraint.” This warning certainly applies not only to courts, but also to arbitrators.It is important that when an arbitrator issues an anti-suit injunction, he is doing exactly the opposite of what the parties expected him to do: fomenting more litigation and, consequently, increasing the length, cost and complexity of arbitration proceedings.


Laurent Lévy (Anti-suit injunctions issued by arbitrators in: “IAI Series On International Arbitration” No.2, Anti-suit injunctions in international arbitration, p.128 (E. Gaillard ed., 2005that arbitrators may only issue anti-suit injunctions in extreme circumstances, “where it appears necessary to protect the arbitral proceedings, namely where a party is fraudulently attempting to undermine the arbitral tribunal’s jurisdiction”


2. Anti-suit injunctions ordered by courts

Reviewing an application for issuance of an anti-suit injunction, a court must look into the constitutional and procedural threshold requirements established in its own legal system.



One of the most famous anti-suit injunction cases in the context of international arbitration is the so-called Pertamina case, 2007 which involved a “battle” of anti-suit injunctions between U.S. Courts and Indonesian Courts

(2) anti-suit injunctions to favor arbitration.

(1) anti-suit injunctions to prevent arbitration, so-called “anti-arbitration injunctions”

There are two types of anti-suit injunctions:

Brief description of this case, which went on for many years, is as follows – briefly, in ten steps:

1. The parties, Karaha Bodas Company, L.L.C. (“KBC”), a Cayman Islands company owned by American companies and other investors, and (“Pertamina”), a company owned by the government of Indonesia, entered into a joint venture for exploration and development of geothermal energy resources in Indonesia.

2. The contract contained a clause providing that disputes should be settled by arbitration in Switzerland under the Uncitral rules. The Indonesian government unilaterally suspended the project, and KBC commenced arbitration proceedings in Switzerland seeking damages.

3. The arbitral panel rendered a final decision favorable to KBC, awarding it more than $261 million in damages. Pertamina challenged the award in the Supreme Court of Switzerland, but the case was dismissed.

4. KBC commenced proceedings in the U.S. District Court for the Southern District of Texas to confirm the award, based on the New York Convention. This court entered a judgment confirming the award. Pertamina appealed this decision, and in parallel filed an action in Jakarta, Indonesia, to void the award and enjoin KBC from enforcing it. KBC then obtained from the Texas court an anti- suit injunction enjoining Pertamina from pursuing injunctive relief against KBC in Indonesia.


5. However, Pertamina obtained an anti-suit injunction from the Indonesian trial court to prohibit KBC from enforcing the award, and also an order annulling the award.

6. The Texas court then issued another anti-suit injunction prohibiting Pertamina from enforcing the injunction granted by the Indonesian court.

7. The Fifth Circuit later vacated the anti-suit injunction issued by the Texas court, and the Indonesian Supreme Court vacated the Indonesian anti-suit injunction and the decision annulling the award.

8. Afterward, the Fifth Circuit affirmed the Texas court’s decision confirming the award, and Pertamina appealed. Meanwhile, KBC sought registration and execution of the Texas judgment in the Southern District of New York. After a dispute over the ownership of the assets located in New York, the district court ordered a bank to turn over the amount of the judgment to KBC.

9. Nevertheless, Pertamina filed a new lawsuit against KBC, this time in the Cayman Islands, alleging fraud and seeking restitution of the amounts paid in connection with the arbitration award. In response, KBC applied to the Southern District Court of New York for an anti-suit injunction to prohibit Pertamina from maintaining the action in the Cayman Islands. The court granted the anti-suit injunction.

10.The Second Circuit affirmed the district court’s decision, with slight modifications, ruling that “federal courts do have inherent power to protect their own judgments from being undermined or vitiated by vexatious litigation in other jurisdictions.” The court invoked the strong policy in favor of international arbitration, which “would be undermined were we to permit Pertamina to proceed with protracted and expensive litigation that is intended to vitiate an international arbitral award that federal courts have confirmed and enforced.”


III.Anti-suit injunctions ordered by courts as remedy in the enforcement of

international arbitration agreements.


- comity,

An anti-suit injunction is directed at the individual parties, not at the court where the litigation is taking place.


- and other equitable factors

- public policy,

International comity has been described by courts as the recognition that one nation extends within its own territory to the legislative, executive or judicial acts of another nation and this recognition should be withheld only when its acceptance would be contrary or prejudicial to the interest of the nation called upon to give it effect.

1. The conservative approach (standard)

The so called conservative standard was adopted by the Third, Sixth, Eighth, and D.C. Circuits.

Under the “conservative standard,” comity dictates that foreign anti-suit injunctions be issued sparingly and only in the rarest of cases


Courts were adopting the “conservative” only if res judicata applies to bar the foreign proceeding or if the foreign litigation threatens an important public policy or the court`s jurisdiction


- the General Electric Co v Deutz case, 3rd Cir., 2001


- and the older and famous one: Laker AirwaysLtd v Sabena, Belgian World Airlines, DC Cir., 1984

2. The liberal approach (standard)


- whether the foreign litigation might lead to inconsistent results or a race to judgment.

- whether the foreign litigation leads to duplicative efforts, inconvenience, delay, expense, and harassment and

- whether the foreign action is vexatious and oppressive,

Emphasis on equitable considerations:

The “liberal” standard – adopted by the Fifth, Seventh and Ninth Circuits.

- Kaepa Inc v Achilles Corp, 5th Cir


- The “liberal” standard – adopted by the Fifth, Seventh and Ninth Circuits.

- Affymax Inc v Johnson & Johnson, NDist. of Illinois, 2006

- Seattle Totems Hockey Club v NHL, 9th Cir, 1981


3. The middle-ground approach (standard)

The First and Second Circuits have adopted a third, “middle-ground” standard which combines elements of both the conservative and liberal standards


- Parametics Elektromedicina Comercial Ltda v GE Med. Sys. Info.Tech.inc, 2nd Cir, 2004;

- Ibeto Petrochemical Indus. Ltd v M/T Beffen, 2nd Cir, 2007


A blended “totality of the circumstances” standard :

(1) the nature of the two actions (i.e. whether they are merely parallel or whether the foreign action is more properly classified as interdictory);

(4) the extent to which the foreign action has the potential to undermine the forum court`s ability to reach a just and speedy result.

(3) the conduct of the parties (including their good faith or lack thereof) and

(2) the posture of the proceedings in the two countries;

IV. Conclusion


(3) US courts have demonstrated a tendency to issue anti- suit injunctions in support of arbitration,

(4) These differing approaches to anti-suit injunctions may be an important consideration in choosing a situs for arbitration proceedings

(1) arbitrators have jurisdiction and power to issue anti-suit injunctions

(2) Anti-suit injunctions may be a remedy in the enforcement of the international

arbitration agreements

Thank you for your attention


Professor Tomasz Siemiątkowski G ŁUCHOWSKI S IEMIĄTKOWSKI Z WARA.

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