Jurisdiction – Challenge to jurisdiction – Contract between parties

AES Ust-Kamenogorsk Hydropower Plant LLC v Ust-Kamenogorsk Hydropower Plant JSC: CA (Civ Div) Lord Justices Rix, Wilson and Stanley Burnton: 27 May 2011

The instant proceedings concerned a 20-year concession, dated 23 July 1997, between the defendant owner company and the claimant operator company of hydroelectric facilities in Kazakhstan (the contract).

Apart from its arbitration clause (set out in clause 32), which was governed by English law, the contract was governed by Kazakhstan law. It was originally made between the Republic of Kazakhstan itself and AES Suntree Power Ltd (Suntree). The claimant subsequently became entitled to the rights of its parent or associate as a result of a transfer agreement dated 1 October 2007 (the transfer agreement). Similarly, the defendant became entitled to the rights of the Republic of Kazakhstan under the same transfer agreement, which expressly incorporated the contract’s arbitration provisions. In the past, the Republic of Kazakhstan had attempted to litigate in Kazakhstan on matters which fell within the arbitration clause. In April 2003, it had returned to that issue by commencing proceedings against Suntree and the claimant’s predecessor, seeking annulment of clause 32. The matter eventually went before the Kazakhstan Supreme Court, which decided in 2004 that clause 32 was invalid. In June 2009, the defendant brought a claim against the claimant, seeking further information about the value of the concession’s assets. The claimant’s application to dismiss that claim on the ground that it was ‘subject to resolution in arbitration court’, was dismissed by the Kazakhstan court (the Economic Court) on the basis, among other things, of the Supreme Court’s 2004 ruling. The claimant then sought to defend the defendant’s claim for further information on the merits.

At about the same time, on 31 July, in London, the claimant issued a claim form in the Commercial Court, seeking two declarations, namely that: (i) clause 32 was valid and enforceable; and (ii) the ‘current dispute’ between the parties fell within clause 32. The claimant successfully applied, pursuant to section 44 of the Arbitration Act 1996 (the 1996 act) and section 37 of the Supreme Court Act 1981 (the 1981 act), for a without-notice anti-suit injunction to prevent the defendant from commencing or pursuing legal proceedings in the Kazakhstan court, as well as permission to serve an arbitration claim form out of the jurisdiction on the defendant. By a motion of 4 August 2009, the claimant brought the London proceedings to the attention of the Economic Court and applied to suspend the defendant’s proceedings. On 5 August, there was a hearing at which the Economic Court rejected the claimant’s motion, concluded that there was improper reliance on clause 32, and ordered that the defendant’s claim for the confirmation requested should be upheld. The defendant submitted that, by pleading its response on the merits of the defendant’s claim, and by participating in the hearing of 5 August, the claimant had submitted to the jurisdiction of the Economic Court. By an application notice dated 16 October, the defendant applied for an order that the Commercial Court had no jurisdiction to try the claimant’s claim or should not exercise any jurisdiction it might have, and that service of the claim form should be set aside. The parties’ respective applications were heard on 25 and 26 March 2010. By that date, the defendant had withdrawn its claim for further information in Kazakhstan, and the claimant had nothing that it wished to refer to arbitration in London. In an order dated 16 April 2010, the Commercial Court rejected the defendant’s submissions that the court lacked jurisdiction to make the orders sought (see [2010] All ER (D) 163 (April)). The defendant appealed, contending that the judge was wrong to accept jurisdiction or to purport to exercise a power which he lacked.

First, it fell to be determined whether, as a matter of principle, the court had effective jurisdiction to grant a declaration for an anti-suit injunction to protect a party’s rights under an arbitration agreement in circumstances where there were no arbitral proceedings on foot and none were intended pursuant to the agreement (the jurisdiction issue). It became common ground that section 44 of the 1996 act did not provide such jurisdiction, since that was concerned with the court’s powers in support of arbitral proceedings, actual or at least prospective. The claimant relied on section 37 of the 1981 act as providing jurisdictional basis for its proceedings therein. Second, whether the claimant had shown a good arguable case for reliance on any jurisdictional gateway for service out of the jurisdiction (the gateway issue). In that regard, the claimant relied on, among other things, the following four gateways: (i) rule 62.5(1)(b) of the Civil Procedure Rules; (ii) rule 62.5(1)(c) of the CPR; (iii) rule 6.36 of the CPR and paragraph 3.1(20) of practice direction B; and (iv) by retrospective amendment, after the initial permission had been granted, rule 6.36 of the CPR and paragraph 3.1(6)(c) of practice direction B. The judge rejected (i) and (iv), upheld (ii) and, if necessary, (iii). The defendant submitted that the judge was right about (i) and (iv), and wrong about (ii) and (iii). In support of that submission, the defendant relied on Vale de Rio Doce Navegacao SA v Shanghai Bao Shipping Co Ltd [2000] 2 LLoyd’s Rep 1 (Vale de Rio). Third, whether the English court ought to recognise that the arbitration clause was void as being against Kazakhstan public policy. Fourth, whether the claimant had submitted to the jurisdiction of the Kazakhstan Economic Court in the 2009 litigation in Kazakhstan.

The appeal would be dismissed.

(1) In the instant case, there was no jurisdictional or principled lack of power in the English courts to make the orders that had been made by the judge. There was no reason why, as a matter of jurisdiction, there should be any difficulty about the English court providing a remedy to preserve and support the right of the claimant to arbitrate. It was common ground that section 44 of the 1996 act was not applicable. There was no instant prospect that section 32 of the 1996 act was applicable, although it was always feasible that it might become so at some time in the future. The demand that the claimant commence an arbitration solely in order to put before an arbitral tribunal an issue of substantive jurisdiction which it was to be presumed the defendant would repudiate, very probably by standing aloof from the arbitration, and which, in all practical terms, could only be definitively settled by the court, was far-fetched and unrealistic, to be creative of unnecessary expense and delay, and to put the claimant under unnecessary risk that further proceedings in the Kazakhstan courts would be to its prejudice, as well as to the prejudice of the agreed process of arbitration. None of that promoted any of the principles upon which the 1996 act was founded, as set out in its section 1. It would be the antithesis of the principles of that act for the English court, in such circumstances, to refuse, as a matter of jurisdiction or principle, a request for assistance in the form of an anti-suit injunction (see [107] of the judgment). The claimant’s appeal on the jurisdiction issue would be dismissed (see [111] of the judgment).

(2) In the instant case, the defendant’s submissions were not compelling, neither were those of the judge in Vale de Rio. Without an a priori hypothesis that any application to the court about an arbitration agreement had to be grounded in some section of the 1996 act, it was unnatural to read what was rule 62.2(1)(a) of the CPR as containing the sole decisive rule, and everything else, viz sub-rules (b), (c) and (d) as being mere exegesis and exemplification of the terms of the 1996 act. The contrasting language of ‘(a) any application to the court under the 1996 act’ and ‘(d) any other application…’ was particularly striking. Moreover, nowhere had the judge in Vale de Rio considered the role of section 37 of the 1981 act and the anti-suit injunction. In the circumstances, rule 62.2(1)(a) was applicable merely where it was applicable, and not where it was not. There was no rubric on the designated arbitration claim form which required in terms a section of the 1996 act to be specified. In respect of 62PD 2.1, ('An arbitration claim under the 1996 Act'), that could not prevail over the CPR rule and in any event did not state in terms that no arbitration claim could exist other than a claim 'under the 1996 Act'. In respect of the reference on the form to 'an [intended] arbitration', there was no reason why it might not simply be struck out where it was irrelevant. 62PD 2.2 stated only that an arbitration claim form had to be ‘substantially’ in the form appendixed (see [120] of the judgment).

The defendant’s appeal in respect of gateway (ii) would be dismissed. The claimant was entitled to service out of his claim form (see [122], [144] of the judgment).

(3) In the instant case, the relevant authorities did not cast a great deal of light on the application of section 32 of the 1982 act to the instant circumstances. However, subject to the question of submission to the foreign court, it was clear that the English courts had not hesitated to prefer the parties’ choice of English jurisdiction and arbitration clauses to even the public policy requirements of foreign law as expressed in foreign statute and/or applied in the decisions of foreign courts. The instant court was not bound by the Kazakhstan courts’ construction of the English law arbitration agreement (subject to any question of submission) or by its view that it was contrary to Kazakhstan public policy. Further, in circumstances where it was completely plain that the Kazakhstan Supreme Court had simply been mistaken in thinking that the arbitration clause covered, rather than excluded, clause 17.8/9 tariff disputes, so that on a proper construction of the arbitration agreement, there had in fact been no relevant matter of concern for, or impact upon, Kazakhstan public policy, why the Kazakhstan courts’ judgments should be recognised or enforced (see [163] of the judgment).

The judge's decision would be upheld: the Kazakhstan judgments should not be recognised or enforced in the UK (see [163] of the judgment).

(4) In the instant case, it would not be right for the court to reverse the careful decision of the judge that there had at least been a good arguable case that what had occurred in the Economic Court between 28 July and 5 August had not amounted to a submission to its jurisdiction. It had been obvious from the beginning to the end that the claimant had been presenting and preserving its challenge to the court's jurisdiction on the ground of the parties’ arbitration agreement, if necessary by way of appeal. It was plain from the claimant’s response, even after the decision of 28 July, that the claimant had not been waiving its right to rely on arbitration (see [186] of the judgment).

[2010] All ER (D) 163 (Jun) affirmed.

Antony White QC (instructed by Reed Smith) for the defendant; Bernard Eder QC and Jessica Wells (instructed by Allen & Overy) for the claimant.