Enforcement of Arbitration Agreements via Anti-Suit Relief | ZFZ Postcard Cases
Where an arbitration agreement provides the seat of arbitration as London, yet a party to the agreement commences proceedings in another jurisdiction, the innocent party may apply to the English Court for an anti-suit relief to restrain the defaulting party.
This principle is illustrated in the recent High Court decision of Mr. Justice Foxton in Aquavita International SA v Indagro SA. This case demonstrates the continuous willingness of the English Courts to enforce arbitration agreements. The Court continued the anti-suit injunction previously granted by Mr. Justice Fraser on grounds that the order obtained from the Brazilian Court, requiring Aquavita International SA (the ‘Owner’) to discharge 17,4000mt of cargo amounted to a determination that left nothing substantive to be decided in arbitration.
Aquavita Eternity was chartered by Indagro SA (the ‘Charterer’) under the terms of a charterparty dated 25 November 2021, to carry a cargo of 61,500/63,500mt of ammonium sulphate from Qinhuangdao, China to ‘1 safe berth/safe anchorage Paranagua plus 1 safe berth/safe anchorage Sao Francisco Do Sul’. The dispute resolution clause therein provided for disputes arising out of or in relation to the charterparty or bills of lading issued thereunder to be resolved by arbitration in London.
Pursuant to a contract of sale between Yantai Jiahe Agriculture Means Production Co (‘Yantai’) and the Charterer, 3 bills of lading were issued to Yantai as shipper and seller of 42,750mt out of the 61,500/63,500mt of ammonium sulphate (the ‘Cargo’). In January 2022, Yantai instructed the Owner not to discharge the Cargo to the Charterer except against the presentation of the original bills of lading because the Charterer had failed to make payments under the contract of sale.
Proceedings before 2nd Civil Court, Brazil
The Charterer sought an injunction from the 2nd Civil Court of the City of Sao Francisco Do Sul (the ‘Brazilian Court’) requiring the Owner to discharge 17,400mt of cargo (the ‘Interim Order’) because its refusal to do so was in breach of the provisions of the Brazilian Civil and Commercial Code. On 28 March 2022, the Brazilian Court granted the Interim Order.
Application to Commercial Court, England & Wales
The Owner brought an ex-parte application before Mr. Justice Fraser in the High Court for an anti-suit injunction, requiring the Charterer to withdraw proceedings in Brazil, set aside the Interim Order and to refrain from commencing any further proceedings to similar effect in respect of the remaining Cargo. Mr. Justice Fraser declined to make an order in respect of the existing Sao Francisco proceedings because discharge of the 17,400mt of cargo was almost complete. He however granted an injunction in respect of the remaining cargo that was due to be discharged at Rio Grande.
On the return date, Mr. Justice Foxton had to determine whether the injunction granted on 4 April 2022 should be confirmed.
The Court set out the three qualities that proceedings that are commenced in foreign jurisdictions to obtain security should possess, in order to be legitimate. They are as follows: (i) the foreign court should not be concerned with reaching a final decision on the merits of the claim; (ii) the relief sought should not be equivalent to the relief which would follow from the final enforcement of the parties’ substantive rights and obligations; and (iii) the relief can be said to be in aid of the substantive proceedings on the agreed forum, with limited value if no such proceedings are prosecuted to settlement, judgment or award.
The Charterer argued that the presence of the first feature was sufficient to prevent proceedings from constituting a breach of the arbitration agreement. The Owner on the other hand contended that proceedings in a non-contractual forum, which did not share the first and second features constituted a breach of the forum selection agreement.
Mr. Justice Foxton explained that an interim relief relating to the performance of a substantive obligation does not necessarily render proceedings in a foreign jurisdiction, a breach of the forum selection clause. In other words, an application brought before the appropriate court, that seeks to ‘hold the ring’ pending the determination of the substantive matter by the agreed tribunal, does not constitute a breach of the arbitration agreement.
He pointed out that the second and third features set out above were missing in the present case. The Interim Order involved the final determination of the Charterer’s claim that the Owner was obliged to discharge the Cargo. Particularly, in circumstances where the only available relief which could be sought in arbitration is a complaint that the Interim Order was wrongly granted, then the Interim Order cannot be said to have been made in support of the arbitration.
Mr. Justice Foxton was satisfied that the Owner had shown a high probability of success on its claim that the proceedings before the Brazilian Court involved a breach of the arbitration agreement and hence continued the order of 4 April 2022 granted by Mr. Justice Fraser.
For further information on this decision, please reach out to Ewoenam Atiase. To read the full decision, please click here.