Posts tagged: super injunction

Court Injunctions in Aid of Arbitration

In Doosan Babcock Ltd v Commercializidora de Equipos y Materiales Mabe [2013], the Court considered the scope of section 44(3) of the Arbitration Act 1996. Section 44(3) empowers the courts in cases of urgency to make an order for interim relief for the purpose of preserving evidence or assets.  Crucially “assets” include contractual rights or ‘choses in action’.

Babcock had made an application for an injunction restraining the Respondent (known as Mabe) from making demands for payment under two “on demand” performance guarantees, on the ground that Mabe had failed to issue certain certificates as required by the contract. The significance was that guarantees were stated to expire upon the issuance of the certificates.

Babcok argued that it was entitled to interim relief on the grounds that:

  • any demand under the performance guarantees would be a breach of the contract, as Mabe had wrongfully failed to issue the certificates: had the certificates been issued, the guarantees would have expired;
  • if Mabe was entitled to make demands under the guarantees, its position would not be significantly prejudiced by the grant of an injunction for a short period, as there was some time left until the long-stop expiry date;
  • on the other hand, Babcok could not be adequately compensated in damages for the loss it would suffer if its application was dismissed.

Section 44(3) provides that: “If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

Cetelem SA v Roust Holdings [2005]  held that section 44(3) could be used to preserve a contractual right if the effect of any order made pursuant to section 44(3) was to preserve the value of that right. A contractual right was not preserved if a failure to give effect to it would destroy much or all of its value (as would occur if Mabe did not issue the certificates and then demanded payment under the performance guarantees), the case was one where the Court was empowered to grant an injunction under section 44(3) provided that the requirements of urgency and necessity were also met. These requirements were met, as there was sufficient evidence to suggest that Mabe intended to make demands under the performance guarantees.

Under English law, a court will not take action to prevent a bank from paying out on an “on demand” bond or guarantee unless material fraud is established at a final trial or there is clear evidence of fraud at an interim stage in proceedings. However, a court can grant an interim injunction restraining a beneficiary from making a demand under such a bond or guarantee.

In deciding whether to grant interim relief, the court will consider the criteria established in the case of American Cyanamid Co v Ethicon Ltd [1975]; but the applicant must show that it has a “strong case” that, under the terms of the underlying contract to which the bond relates, the beneficiary is not entitled to make a demand on the bond. The Court made an order restraining Mabe from making demands under the performance guarantees for a defined period.

This is an example of applying established principles but it is an interesting case nevertheless.  The power under s44(3) is a useful one especially as, in appropriate cases, the Court can grant an interim injunction that, in effect, amounts to the final relief that a tribunal would be asked to adjudicate upon.  Cetelem makes clear that provided the injunction is a genuine interim injunction and court ensures, by obtaining appropriate undertakings from the claimant, that the substantive rights of the parties would ultimately be resolved by arbitration such an injunction may be granted.

Arbitration “Super Injunctions”

Whilst the English tabloid press works itself into a frenzy over ‘super-injunctions’ to protect the privacy of the rich and famous from exposure and ridicule over their adultery and other indiscretions, the Commercial Court and the Court of Appeal are steadily refining the ‘super-injunction’ of the arbitration field: the anti-suit injunction.  The latest word has come from the Court of Appeal in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC

In dismissing the appeal the Court of Appeal held that where s.44 of the 1996 Act applied, it would be wrong as a matter of principle to utilise s.37 of the 1981 Act to get round the limitations of s.44.  However, where no arbitration had been commenced and none was intended (and hence s.44 was not engaged), and a party asked the court to protect its interest to have its disputes settled in accordance with its arbitration agreement, it was open to the court to consider whether, and how best, if at all, to protect such a right to arbitrate by the use of s.37 of the 1981 Act. Whether the Court would assist a claimant, and if so, how, was a matter for the Court’s discretion.  In exercising that discretion it would take care not to usurp any arbitral process, but it was clear that it had the jurisdiction to intervene in an appropriate case. That was not inconsistent with s.1(c) of the 1996 Act. The words “should not intervene” in section 1(c) were directed towards intervention in the conduct of an arbitration, and not towards intervention in the conduct of litigation which threatened the safety of an arbitration agreement or any possible arbitration pursuant to it. In any event, section 1(c) was only one of three principles stated in section 1: the other section 1 principles (in particular, the need to avoid unnecessary delay and expense) might well point in favour of court intervention.

Hydropower is helpful in clarifying the relationship between section 37 of the 1981 Act and section 44 of the 1996 Act.  Most recent decisions indicate that where an interim injunction is sought, as a matter of discretion, the 1981 Act power should be exercised to grant interim relief only where it would also be appropriate for the court to act under section 44.  However, that restriction does not apply where an application is made for a final injunction (see Welex AG v Roas Maritime [2003] and Steamship Mutual Underwriting v Sulpicio Lines [2008]).

 The approach of the Court of Appeal is founded not only on both the purpose and the policy of the 1996 Act but also in considerations of efficiency and convenience. On the owner’s interpretation of the Act (founded on the Vale do Rio [2000] case), the operator would have been obliged to commence arbitral proceedings for the sole purpose of seeking a ruling on a jurisdictional issue. Since jurisdictional issues will usually reach the court at some stage anyway, to require an arbitration to be commenced in such circumstances would be artificial and inefficient.

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