Courts in India have grappled with the challenge of maintaining a balance between the duty of a court to ensure that a party before it is not unfairly prejudiced; and respecting the principles of comity and sovereignty of judicial fora in a friendly nation. In the context of arbitration, this question arises from time to time when a litigating party seeks an anti-arbitration injunction against the conduct of a foreign seated arbitration. The High Court of Calcutta (High Court) has recently rendered a detailed judgment in Balasore Alloys Limited v. Medima LLC,1 discussing the power of courts in India to grant anti-arbitration injunctions against foreign seated arbitrations, and the scope and limitations within which that power may be exercised.
The Plaintiff and the Respondent had entered into an agreement in the year 2017 (2017 Agreement), whereby goods manufactured by the Plaintiff would be sold and distributed exclusively by the Respondent in the territories of Canada and USA. The Plaintiff exported the goods to the Respondent, which would then re-sell the goods to the end consumers in Canada and USA. In furtherance of this arrangement, the parties had subsequently also entered into an agency agreement in the year 2018 (Agency Agreement), which was to govern all future transactions / purchase orders between the parties.
Clause 23 of the Agency Agreement set out the governing law and dispute resolution mechanism chosen by the parties, as set out below:
"23. Governing Law; Disputes This Agreement shall be governed by and construed in accordance with the laws of the United Kingdom. Any claim, controversy or dispute arising out of or in connection with this Agreement or the performance hereof, after a thirty calendar day period to enable the parties to resolve such dispute in good faith, shall be submitted to arbitration conducted in the English language in the United Kingdom in accordance with the Rules of Arbitration of the International Chamber of Commerce by 3 (Three) arbitrators appointed in accordance with the said Rules, to be conducted in the English language in London in accordance with British Law. Judgment of the award may be entered and enforced in any court having jurisdiction over the party against whom enforcement is sought."
This clause in the Agency Agreement is in stark contrast to Clauses 7, 8 and 9 in the purchase orders exchanged between the parties, as set out below:
"7. ARBITRATION: Disputes and differences arising out of or in connection with or relating to the interpretation of this contract/order shall be referred to the Arbitral Tribunal consisting of 3 Arbitrators of which each party shall appoint one Arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the Presiding Arbitrator as per the provisions of the Arbitration and Conciliation Act, 1996 and any modification or re-enactment thereto. The venue of the arbitration proceedings shall be at Kolkata and language of the arbitration shall be English. The arbitration award shall be final and binding upon the parties and the parties agree to be bound thereby and to act accordingly. When any dispute has been referred to arbitration, except for the matters in dispute, the parties shall continue to exercise their remaining respective rights and fulfil their remaining respective obligations.
- GOVERNING LAWS & JURISDICTION: The contract shall be governed by, and construed in accordance with, the laws of India and the courts at Kolkata, West Bengal alone shall have exclusive jurisdiction over all disputes arising under, pursuant to and/or in connection with the contract/order.
- EXECUTION OF AGREEMENT: Each of the parties to this agreement represents that it has full legal authority to execute this agreement and that each party shall be bound by the terms and conditions contained in the agreement. Notwithstanding anything contrary in any other previous documents/correspondence, the provisions of this agreement shall prevail."
When disputes arose between the parties, the Respondent issued a "Notice of Dispute" to the Plaintiff, invoking Clause 23 of the Agency Agreement. In response to this "Notice of Dispute", the Plaintiff issued a reply stating that the disputes have arisen under independent purchase orders and will, therefore, be governed by Clauses 7, 8 and 9 contained in the purchase orders and further indicated its intention to invoke arbitration in terms of these clauses and the Arbitration and Conciliation Act, 1996 (Arbitration Act).
Both parties went ahead with initiating arbitration before two different forums. The Respondent filed a "Request for Arbitration" (RFA) before the ICC in London. In contrast, the Plaintiff initiated arbitral proceedings in terms of Section 21 of the Arbitration Act and filed an application under Section 11 to take measures towards constituting an arbitral tribunal under the domestic arbitration agreements.
Eventually, the ICC informed the Plaintiff of its decision confirming that an arbitral tribunal would be constituted under the ICC Rules, comprising a panel of three arbitrators in accordance with Clause 23 of the Agency Agreement. The Plaintiff, aggrieved by this decision of the ICC, had approached the High Court of Calcutta to seek an injunction against the abovementioned ICC arbitration proceedings.
The following two questions came up for consideration of the High Court:
- Whether the court has the power and jurisdiction to grant an anti-arbitration injunction against a foreign seated arbitration, and if so, under what circumstances can such an injunction be granted?
- If the answer to the above question is in the affirmative, do the facts and circumstances in the present case warrant the grant of such an ad-interim injunction?
FINDINGS OF THE HIGH COURT
Several judicial precedents were brought forth by the parties during the course of arguments before the High Court. Particularly, the seemingly contrasting legal positions set out in Kvaerner Cementation India Limited v. Bajranglal Agarwal and Anr.2 (Kvaerner) and SBP & Co. v. Patel Engineering3 (SBP) were highlighted before the High Court, in relation to the power of a civil court to grant an injunction that may impede the progress of arbitral proceedings which have already commenced.
The High Court placed reliance on the SBP judgment, wherein the Supreme Court had conclusively rejected the argument that an arbitral tribunal has sole competence, to the complete exclusion of civil courts, to determine its own jurisdiction. The High Court opined that this SBP dictum implicitly overrules the contrary position that was incorrectly set out in Kvaerner, and settles the issue of existence of a civil court's power to grant anti-arbitration injunctions.
However, the High Court emphasized that this power is to be used sparingly and with abundant caution, and only under the circumstances enumerated and exhaustively discussed by the Supreme Court in Modi Entertainment Network v. W.S.G. Cricket4 (Modi Entertainment). The circumstances that would merit a grant of an anti-arbitration injunction and justify its rare and controlled usage, laid down in Modi Entertainment are as follows:
"24. From the above discussion the following principles emerge:
1) In exercising discretion to grant an ant-suit injunction the court must be satisfied of the following aspects:
- a) the defendant, against whom injunction is sought, is amenable to the personal jurisdiction of the court;
- b) if the injunction is declined, the ends of justice will be defeated and injustice will be perpetuated; and
- c) the principle of comity - respect for the court in which the commencement or continuance of action/proceeding is sought to be restrained - must be borne in mind.
2) In a case where more forums than one are available, the court in exercise of its discretion to grant anti-suit injunction will examine as to which is the appropriate forum (forum conveniens) having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexatious or in a forum non-conveniens.
3) Where the jurisdiction of a court is invoked on the basis of jurisdiction clause in a contract, the recitals therein in regard to exclusive or non-exclusive jurisdiction of the court of the choice of parties are not determinative but are relevant factors and when a question arises as to the nature of the jurisdiction agreed to between the parties the court has to decide the same on a true interpretation of the contract on the facts and in the circumstances of each case.
4) A court of natural jurisdiction will not normally grant anti-suit injunction against a defendant before it where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court, a forum of their choice in regard to the commencement or continuance of proceedings in the court of choice, save in exceptional case for good and sufficient reasons, with a view to prevent injustice in circumstances such as which permit a contracting party to be relieved of the burden of the contract; or since the date of the contract the circumstances or subsequent events have made it impossible for the party seeking injunction to prosecute the case in the court of choice because the essence of the jurisdiction of the court does not exist or because of a vis major or force majeure and the like.
5) Where parties have agreed, under a non-exclusive jurisdiction clause, to approach a neutral foreign forum and be governed by the law applicable to it for the resolution of their disputes arising under the contract, ordinarily no anti-suit injunction will be granted in regard to proceedings in such a forum conveniens and favoured forum as it shall be presumed that the parties have thought over their convenience and all other relevant factors before submitting to the non-exclusive jurisdiction of the court of their choice which cannot be treated just as an alternative forum.
6) A party to the contract containing jurisdiction clause cannot normally be prevented from approaching the court of choice of the parties as it would amount to aiding breach of the contract; yet when one of the parties to the jurisdiction clause approaches the court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that court cannot per se be treated as vexatious or oppressive nor can the court be said to be forum non-conveniens.
7) The burden of establishing that the forum of choice is a forum non-conveniens or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same."
In light of the observations set out in Modi Entertainment, the High Court assessed the matter at hand on merits and opined that the Plaintiff has failed to conclusively discharge its burden of exhibiting that the ICC in London, the alternate forum in this case, is either a forum non-conveniens or that the proceedings initiated before it by the respondent are oppressive or vexatious in nature as required in sub-paragraph 7 extracted above.
The High Court had further noted that despite identifying the conflict in dispute resolution clauses in the Agency Agreement and purchase orders, the parties had refrained from amending either one of the clauses to remove such conflict. It was therefore inferred that both parties had thought over their convenience and all relevant factors before submitting to the non-exclusive jurisdiction of the courts of their choice. Therefore, the choice of ICC as a forum could not be written-off or merely treated as an alternative forum by the Plaintiff, just because a dispute had now emerged. The parties had consciously chosen a third, independent and non-partial seat for arbitration. Moreover, the law to be applied was also elected to be English law (neutral) and not American law or Indian law. Having chosen such a neutral venue and applicable law, the High Court observed that neither party is at a disadvantage before the ICC, as clarified in sub-paragraph 5 extracted above.
Lastly, the High Court reiterated sub-paragraph 6 extracted above to state that the mere possibility that "multiplicity of proceedings" may arise, is not a ground in itself for the grant of an anti-arbitration injunction against the Respondent unless such a ground is coupled with the plea of either forum non-conveniens or vexatious or oppressive proceedings launched before such a neutral foreign forum. The High Court clarified that for an arbitration agreement to become inoperative, it should have ceased to have effect and the mere existence of multiple proceedings is not sufficient to render the arbitration agreement inoperative. In conclusion, the High Court opined that there seemed to be no reason indicated for grant of an anti-arbitration injunction in the given facts and circumstances.
The High Court was quite critical of the parties for entering into the conflicting Agency Agreement and purchase orders with their eyes open. Consequently, it was of the opinion that if multiple proceedings arise out of the parties' own doing, due to certain ambiguities in contracts entered between them with open eyes, that fact alone cannot make one of the proceedings, especially a neutral foreign seated arbitration applying a neutral governing and proper law, a vexatious or oppressive proceeding.
Although the High Court has elaborately clarified that civil courts have the power to grant injunctions against foreign seated arbitrations, the threshold required to be met by a party seeking such an injunction has been set quite high. A party seeking an anti-arbitration injunction against a foreign seated arbitration is required to discharge the burden of proving that there exists an issue of forum non-conveniens, or that the proceedings launched before a neutral foreign forum is vexatious or oppressive, failing which there can be no interference by a civil court even in cases involving potential multiplicity of proceedings.
1 Balasore Alloys Limited v. Medima LLC, G.A. No. 871 of 2020, decision dated 12.08.2020.
2 Cementation India Limited v. Bajranglal Agarwal and Anr, (2012) 5 SCC 214.
3 SBP & Co. v. Patel Engineering, (2005) 8 SCC 618.
4 Modi Entertainment Network v. W.S.G. Cricket, (2003) 4 SCC 341.
Originally published 19 August, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.