My First Anti-Arbitration Injunction

By Elodie Dulac (Senior Associate, King & Spalding, Singapore)

Anti-arbitration injunctions.  I had read about them.  It looked like a glamorous issue raising interesting legal points.  Their occurrence is not limited to Asia, but quite a number of the most (in)famous episodes of anti-arbitration injunctions originated from the courts of Asian countries.  As I practice in Asia, this had captured my interest.

In that vein, there was the Saipem v. Petrobangla arbitration, which was an ICC arbitration with a seat in Dhaka, Bangladesh.  The respondent, Petrobangla, a Bangladeshi state-owned company, obtained from Bangladeshi courts the “revocation” of the arbitral tribunal’s authority and an injunction enjoining the Italian company Saipem not to proceed with the arbitration.  The arbitral tribunal proceeded with the arbitration notwithstanding the injunction and rendered an award in favour of Saipem.[1]  This case later spinned-off into an ICSID arbitration brought by Saipem against Bangladesh under the Italy-Bangladesh bilateral investment treaty.  The ICSID tribunal found that Bangladesh, through its courts’ abusive exercise of their supervisory jurisdiction over the ICC arbitration, had expropriated Saipem’s investment in Bangladesh in breach of the treaty.  The ICSID tribunal ordered Bangladesh to compensate Saipem.[2]

There was also the Himpurna v. Indonesia arbitration, which was an UNCITRAL arbitration with a seat in Jakarta, Indonesia.  The Indonesian state-owned-company Pertamina, albeit not party to the arbitration, obtained from the Indonesian courts an injunction ordering the suspension of the arbitration, with a fine of USD 1 million per day if the arbitration proceeded in breach of the injunction.  The arbitral tribunal moved the hearing venue to The Hague and proceeded with the arbitration.  However, one of the arbitrators was Indonesian and did not participate in the hearing in The Hague.  He later recounted how, after he had arrived in The Hague for the hearing, he was prevented by Indonesian officials from participating in the hearing.  The truncated tribunal rendered an award in favour of Himpurna.[3]

In SGS v. Pakistan, which was an ICSID case under the Switzerland-Pakistan bilateral investment treaty, Pakistan, the respondent, obtained from the Pakistani Supreme Court an injunction ordering SGS not to pursue the ICSID arbitration.  The ICSID tribunal proceeded with the arbitration notwithstanding the injunction.  However, one of the arbitrators, Toby Landau, considered that he could not disregard the injunction.  He resigned and was replaced on the tribunal.  The case later settled.[4]

Beyond these high profile and publicly known cases, anti-arbitration injunctions are a recurring feature in certain Asian jurisdictions, below radar.  You hear about them when you practice in Asia, and you know that if an arbitration involves a respondent from these jurisdictions, the risk of anti-arbitration injunction is there, even if the seat of arbitration is located elsewhere.

The day came when I received my first anti-arbitration injunction in a case I was working on.  It was an UNCITRAL arbitration.  Our client, a US company, was the claimant.  It was claiming the payment of a sum of money under a contract with parties from an Asian State, which I will call here the State of Utopia, with no sarcasm.  In other words, it was a regular contractual dispute between private parties.  The seat of arbitration was not specified in the arbitration agreement.  The arbitral tribunal fixed it in Singapore.  The arbitration proceeded rather smoothly for a few months, with both sides filing their submissions and the respondents participating.  Then one day, we received an email from the respondents attaching an order from a court of Utopia.  It was a one page order, which had been granted ex parte to the respondents by the courts of Utopia.  It was directed at our client and at the arbitral tribunal and, in a one sentence injunction, ordered the suspension of the arbitration while the proceedings were pending before the courts of Utopia.  This document did not contain any information as to the reasons for the injunction.

The immediate legal reaction was for us to argue before the arbitral tribunal that the courts of Utopia had no jurisdiction; that the tribunal should disregard the injunction and that the arbitration should proceed.  We succeeded on that point.  The tribunal held that as the seat of arbitration was in Singapore, Singapore courts were the only courts with supervisory jurisdiction over the arbitration.  It decided that the arbitration shall proceed notwithstanding the Utopian courts’ injunction.

From a textbook’s perspective, everything was fine.  However, the practical reality of an anti-arbitration injunction kicked-in.  Disregarding a court injunction has significant practical consequences.  The main one is that the persons or entities named in the injunction – here our client and the tribunal – are exposed to being held in contempt of court.  If found in contempt of court, it may no longer be feasible for our client to conduct business in Utopia or for its employees, at least the executives and witnesses involved in the arbitration, to travel to or own property in Utopia.  Further, in case of an award in favour of our client, it would in all likelihood not be possible to enforce the award against assets of the respondents in Utopia.

Considering these practical consequences, we opted, despite having obtained from the tribunal that the arbitration not be stayed, to stay the arbitration and to participate in the proceedings before Utopian courts to seek the lift of the stay.  We retained Utopian counsel to do so.  What followed is over a year of unsuccessful attempts to obtain the lift of the stay.  This included hearings being adjourned or delayed for a variety of reasons; the other side’s counsel not appearing, the roster of judges changing (this happened quite a few times), court’s recess (also quite a few of these), court closed for public holidays, court closed to celebrate the retirement of a judge, court closed due to the cricket world cup, or simply the judge not having time to hear our case on the scheduled date (as it turns out, cases to be heard by a judge on a given day are given a call number and the judge almost invariably does not have time to hear all cases called for that day – our call number ranged from over 140 to our all-time best of around 30).  Over a year went by, during which the ex parte anti-arbitration injunction remained in place, and no progress was being made or in sight in obtaining that this injunction be lifted.

In view of this dead-end in the proceedings before Utopian courts, the decision was made to restart the arbitration.  The arbitration proceeded.  The respondents were in default in the arbitration from then on.  Their only further manifestation in the arbitration was to threaten suing the participants for contempt of court in Utopia if they proceeded with the arbitration.  In addition to the commercial consequences for our client in proceeding with the arbitration mentioned above, there were also consequences on our ability to present our case.  Because of the risk of contempt of court in Utopia, witnesses who needed to travel to Utopia or had property there had to drop out of the arbitration; other witnesses also declined to participate any further, and in particular to appear at the hearing out of concern for their own safety given the other side’s threat of contempt proceedings.  Additionally our Utopian counsel (the contract was governed by Utopian law) had to stop working on the arbitration and could not be present at the hearing.  In short, by the time the hearing came, the only persons left standing were the lawyers and the arbitral tribunal (which fortunately did not include any arbitrator from Utopia, who would have had to resign).  The tribunal rendered an award in favour of our client.

Lessons learnt from this experience: even if legally right about the lack of effect an anti-arbitration injunction should have on the arbitration, there are significant practical consequences.  It may not be viable from a business perspective for a claimant to disregard such an injunction.  Even if it is, an injunction will have a severe impact on a party’s ability to present its case and the best that can be done is damage control.

 

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