The Power of an Arbitral Tribunal to Grant Anti-Suit Injunctions Against Third-Party Interests

Author: Aditya Kumar Singh*

Introduction

Though the earlier version of the UNCITRAL Model Law provided for the arbitral tribunal’s power to grant interim measures, it did not elaborate upon the scope and manner for the exercise of such power.[1] The result of this omission was a lack of harmony in the implementation of article 17 by the member states. Where some domestic laws wrongly specified the scope, some discarded article 17, and some adopted article 17 as it was.[2] Thus, by way of the 2006 amendment, the UNCITRAL commission provided for some specific interim remedies under article 17 and specified when they could be exercised. For the purposes of this article, the relevant remedy under examination is Article 17(2)(b).

In this article, it will be demonstrated that though the remedy of an anti-suit injunction available under Art. 17(2)(b) is generally exercised against the parties to the arbitration agreement, the rationale behind the use of such remedy has always been inextricably linked to protecting the jurisdiction of the arbitral tribunal. Accordingly, after laying out the provision in the first section of this article, the second section tries to highlight why the remedy of anti-suit injunction might be exercised even against non-parties to the arbitration agreement. The third section of this article highlights the approach taken by Indian courts towards this proposition of interim measures against third-party interests, and why this power needs to be extended to the arbitral tribunals as well. In the last section, we analyze case law and the judicial framework from India and Hong Kong jurisdiction to develop a test that should be applied before exercising this remedy against third parties.

I. Understanding Art. 17(2)(b)

First, it is necessary to appreciate what Art. 17(2)(b) states:

“Article 17. Power of arbitral tribunal to order interim measures

…

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:

…

(b) Take action that would prevent, or refrain from taking action that is likely to     cause current or imminent harm or prejudice to the arbitral process itself;”

Though the provision itself does not use the phrase ‘anti-suit injunctions’, the Working Group of the UNCITRAL Model Law (“working group”) accepted the fact that article 17(2)(b) was incorporated to provide for tribunal-ordered anti-suit injunctions.[3] The working group considered the fact that this remedy was already being exercised by the tribunals within a few jurisdictions.[4] Further, the rationale behind such a remedy was to ensure that the arbitral tribunals were empowered to “prevent obstruction or delay to the arbitral process” by parties trying to institute a parallel proceeding before a national court or another arbitral tribunal, in contravention to the exclusive agreement to arbitrate.[5]

Thus, it can be said that the remedy of anti-suit injunctions finds force from the principle of kompetenz-kompetenz because the power to determine one’s own jurisdiction also includes the power to protect such jurisdiction to the exclusion of the jurisdiction of other forums.[6] Further, protecting one’s jurisdiction is not limited to protecting the jurisdiction to hear and decide the dispute, the protection should also extend to the effectiveness of the decision, or in the case of arbitration, the effectiveness of the awards and orders of the arbitral tribunal. This broad understanding of protection was propounded by the English courts in the case of Republic of Ecuador v. Occidental Exploration,[7] where Justice Aiksen was of the view that, “the tribunal must have the power to make orders that are intended to give the proper effect to its primary order, which in this case happens to be the monetary compensation to the investor.”[8] The court used this reasoning in order to justify an anti-suit injunction granted by the tribunal, where it was accepted that the injunction itself was a “consequential declaration that was rendered to protect the effectiveness of the tribunal’s earlier order holding that the investor is entitled to monetary compensation.”[9]

II. Prejudice to Arbitral Process by Third Parties?

In the meetings of the UNCITRAL working groups, the commission accepted the fact that there are situations where the parties approach the national courts for interim measures. One such situation is when an interim measure is sought against a non-party to the arbitration agreement.[10] The question is why there might be a need to order interim measures like anti-suit injunctions against a third party, who is neither privy to the arbitration agreement nor the matrix contract of which the arbitration agreement forms a part.

The best way to answer this question is to look at a few cases where an anti-suit injunction was exercised in such a manner. In the case of Millicom International Operations B.V. and Sentel GSM SA v. The Republic of Senegal,[11] an arbitration was underway between Millicom International Operations and Sentel on one side and the Republic of Senegal on the other. Simultaneously, another firm along with Sentel instituted a court proceeding against the Republic of Senegal. Though the parties to the arbitration and the court proceedings were not identical, the tribunal still ordered an anti-suit injunction against the parties to the court proceedings, one of which was not a party to the arbitration agreement.[12] The rationale used by the tribunal was that it had the jurisdiction to determine the dispute at hand, and a determination of the dispute by a court of law would render the entire arbitral proceeding infructuous, as no arbitral award in contravention to the court’s decisions would be enforceable in the Republic of Senegal.[13]

Similarly, in the case of Ceskoslovenska Obchondi Banka (CSOB) v. Slovak Republic,[14] the tribunal was supposed to adjudicate the question of whether the Slovak Republic owed money to the claimant. A third party also filed a suit before the Slovakian Regional Court claiming money from the Slovak Republic for a similar reason.[15] The tribunal observed that the court’s determination of the issue at hand would be highly prejudicial to the tribunal’s jurisdiction. The rationale was similar to the Millicom case, where if the court were to determine the issue at hand, any contradictory award rendered by the tribunal could not be properly enforced by the parties, which in essence meant the entire proceedings would be rendered infructuous. Therefore, in order to protect its jurisdiction, the tribunal issued an anti-suit injunction to prevent the non-party to the arbitration agreement, i.e., the Slovak Collection Company, from continuing this suit before the Slovak Regional Court.[16]

Thus, we see how the actions of a third party can lead to a situation where prejudice is being caused to the arbitral process.

III. Interim Measures in the Indian Framework

Even the Indian courts have recognized that sometimes there is a need to issue interim measures against the interests of non-parties to the arbitration agreement.[17] In this regard, the Delhi High Court has held:

“[A]s a general rule it cannot be laid down that in exercise of power under section 9[18] of the Arbitration act, no direction can be issued to parties not parties to agreement containing an arbitration clause or not parties to arbitration proceedings, the same will hamper the efficacy of the said provision.”[19]

Thus, while courts do have the discretion to use the remedies under section 9 of the act against third parties, such an exercise of these remedies was held to be a deviation from the general norm and therefore, “it needs to be utilized only after considering the facts and circumstances of the case.”[20]  As a result, Indian courts have used this principle to grant interim reliefs against the interest of third parties in a series of cases.[21]

The question now becomes whether the courts believe that this power can be exercised by the arbitral tribunals as well or not. The Delhi High Court in the case of Blue Coast Infrastructure Pvt. Ltd. V. Blue Coast Hotels Ltd. & ANR[22] has affirmed the decisions in M/S Value Advisory and Gatx India Pvt, Ltd. to hold that courts do enjoy the power to order interim measures against third parties under section 9, but has categorically barred the arbitral tribunals from exercising such a power under section 17 of the act.[23] The reasoning provided for the same is that since the arbitral tribunal itself is a “creature of consent”, it cannot exercise its powers against parties who have not consented to its jurisdiction.[24] But the problem with this line of reasoning is that, as illustrated in the introduction, the rationale behind providing this power to grant anti-suit injunction or any interim measure under article 17 of the Model law was not limited to giving more powers to the tribunal to exercise over the parties to the agreement. The underlying reasoning emanates from the principle that the power to determine one’s own jurisdiction under kompetenz-kompetenz also brings with it the power to protect one’s own jurisdiction.[25]

In this regard, the reasoning of the court maintaining a distinction between section 9 and section 17 is inherently flawed for two major reasons. Firstly, the 2015 amendment has made section 9 and section 17 as identical as possible and ensured that the orders of the arbitral tribunals under section 17 had the same impact and reverence as the orders of a court of law under section 9.

Section 9(3)

“Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.”

Section 17(2)

“Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.”

The language of section 9(3)[27] clearly lays down the legislative intent, that the arbitral tribunal should be able to function as an independent adjudicatory body and not be constantly dependent upon the courts. The condition laid down clearly says that, “once the arbitral tribunal has been constituted, the courts will not entertain any application under section 9(1),” the only exception being certain circumstances where the remedy under section 17 is not efficacious. But, courts cannot use this exception to make the remedy inefficacious by creating an artificial distinction between the powers of section 9 and section 17 where none exists as per legislative intent. It is pertinent to note here that even the courts themselves have accepted the argument that the legislative intent and subsequent effect of the 2015 amendment is that the powers under section 9 and section 17 have been made identical in nature.[28] This proposition has been accepted by not just one but many high courts like the Delhi High Court in Lanco Infratech Limited v. Hindustan Construction Company Limited[29]and the Madras High Court in Sundaram Finance Limited v. P. Sakthivel.[30] Thus, the courts cannot on one hand agree with the proposition that the intent behind 2015 amendment was to make the powers behind section 9 and section 17 identical and then on the other hand create an artificial distinction between the two, placing restrictions on the manner in which the power under section 17 should be exercised.

Second, the primary problem with allowing an arbitral tribunal to order an anti-suit injunction against the interest of third parties was the fact that since the non-party to the arbitration agreement had not consented to the tribunal’s jurisdiction, it could not appear before the tribunal and present its case as to why such an injunction should not be granted. This would in essence mean that the third party was being condemned unheard. This is why the earlier decision of the courts holding that only section 9 gives the power for such an exercise of interim measures was desirable as a matter of policy, because in a court, even the third party could appear and present its case against the grant of such an injunction. But, after the 2015 amendment, the situation has changed drastically, with the Bombay High Court providing an alternate approach through which even if the arbitral tribunals were to exercise the remedy under section 17 against a third party, the third party would still not be condemned unheard.

In the case of Prabhat Steel Traders Private Limited v. Excel Metal Processors Private Limited,[31] two parties were involved in a dispute about payment of certain sum of money and the ownership of some steel coils. Coincidentally, one of the parties was also involved in the business of refining steel coils and a third party had given a few of its steel coils to be refined to this party. These steel coils happened to be in the party’s warehouse at the time when the dispute arose. The tribunal, while exercising its powers under section 17, enjoined the third party from recovering the steel pipes before the arbitral tribunal had reached a decision as to the ownership of all the steel pipes including the ones belonging to the third party.[32] The third party approached the court under section 37 of the act and challenged this exercise of power under section 17. The court, while adjudicating upon the dispute, did not deny the fact that the arbitral tribunal had the power to exercise the remedy under section 17 in this particular manner against a third party.[33] But at the same time the court also observed that there can be cases where this power might have been exercised wrongly, like it did in this case.[34] Thus, the court concluded that while the arbitral tribunals can exercise their powers against third party interests, any third party that might be aggrieved by such an interim measure will always have the remedy to approach the courts under section 37. The court shall then review the order of the tribunal and determine whether such an exercise of power under section 17 should be allowed or not on a case to case basis. At the stage of this review in court, the third party may be allowed to present its case.[35]

This in turn solves the problem of the rights of a third party being hindered without it being given the opportunity to present a case for their defense. Thus, in light of the legislative intent behind the 2015 amendment and the alternate approach offered by the Bombay High Court in Prabhat Steels,[36] it is submitted that arbitral tribunals should be allowed to exercise this remedy of anti-suit injunctions even against the interest of third parties because as shown above, there can be a lot of situations where ordering such measures are imperative to prevent prejudice to the arbitral process. Further, since it has already been established that arbitral tribunals are “creatures of consent,”[37] they owe a duty to the parties who have consented to their jurisdiction and they cannot abandon this duty in light of a third party trying to subvert the arbitral process by instituting a parallel proceeding. As creatures of consent, they also owe a duty to protect the consent vested in their jurisdiction over the dispute at hand.

Further, there are two competing interests. One is the principle of privity of contract as per which the tribunal should be prevented from moving against a third party’s interests. The other is the principle of kompetenz-kompetenz as per which the tribunal should be allowed to exercise this power to protect its jurisdiction. While allowing the tribunals to exercise this power might go against the principle of privity, such a situation is easily remedied through the use of section 37, as illustrated above. However, not allowing the tribunals to exercise this power might result in the entire arbitral proceeding being rendered infructuous, as illustrated in sections I and II. Thus, the principle of kompetenz-kompetenz should be given preference over principle of privity.

The only question that remains is, how should this power be exercised? Should the tribunals be allowed to issue interim measures against any third party, or should there be a parameter to assess whether or not an interim measure is warranted in the case? This question shall be addressed in the next section of the article.

IV. Standard for Interim Measures against Third Parties

After having established that arbitral tribunals should be allowed to exercise such a power, it is also important to demarcate the limits for such an exercise. Some of the most interesting standards set forth for considering anti-suit injunctions against third parties come from Hong Kong. In the case of Dickson Valora Group (Holdings) Co. Ltd. v. Fan Ji Qian,[38] Dickson Holdings Enterprise Co. Ltd was a wholly-owned subsidiary of Fan Ji Qian, and Dickson entered into a joint venture with Moravia CV to pursue a real estate project. The joint venture agreement provided for a success fee to be paid to Fan Ji Qian as long as Dickson Holdings Enterprise Co. Ltd. completed their part of the contract in time, but Fan Ji Qian was not a party to the original contract or the arbitration agreement. Due to a dispute between Dickson Holdings and Moravia CV, Fan Ji Qian instituted a suit to claim the success fee, and the joint venture Dickson approached the court seeking an anti-suit injunction against Fan Ji Qian on the grounds that the current dispute was already before an arbitral tribunal. The court held that since Fan Ji Qian was claiming the success fee under the same agreement as the arbitration clause, an anti-suit injunction can be granted against it even though it is a non-party to the arbitration agreement.

Similarly, in the case of GM1 & GM2 v KC,[39] the court, while relying on the ratio of Giorgio Armani SpA v Elan Clothes Co, held that an anti-suit injunction can also be granted against an affiliate of one of the parties to the arbitration agreement, even if the affiliate was not a party to the original contract or the arbitration agreement. Thus, a common thread between these two judgments is that the third party should not be a complete stranger to the original contract. In the Dickson Valora case, the third party was claiming under the original contract, in the GM1 case the third party was the affiliate of one of the parties.

This standard of “not a stranger to the original contract” has also been upheld by the Delhi High Court in the case of CERF Finance Ltd. v Puri Constructions Ltd.[41] In this particular case CERF and Puri Constructions had entered into a joint venture for land development, this contract also had an arbitration clause. Later, both these parties entered into a contract with L&T for land development as per which some land had to be given to L&T. A dispute arose between CERF Finance and Puri Construction and the arbitrator gave an award in CERF’s favor, ordering Puri Construction to hand over a certain portion of the land to CERF. But Puri Constructions had already given that portion of land to L&T, the court exercised its powers under section 9 of the act to grant an interim injunction against L&T, holding that the particular portion of land will have to be returned to CERF. The court further held that even though L&T might be a non-party to the arbitration agreement, since it was not a stranger to the contract between the two parties, the remedy under section 9 can be exercised against it as well.[42]

This standard of not being a stranger to the original contract shall ensure that only parties having the intention to cause prejudice to the arbitral process are being enjoined from instituting a parallel proceeding, and this remedy under section 17 is not being used to violate the legitimate rights of a third party. A practical application of this standard can be observed in the earlier case of Prabhat Steel Traders Private Limited v. Excel Metal Processors Private Limited.[43] In that case if the standard of “not a stranger to the original contract” were applied it would be clear that the third party only had a contract with one of the parties, for storing and refining its steel coils. The third party was not privy to the original contract under which the arbitration was taking place, and hence, it can be called a stranger to the original contract. The arbitral tribunal should not have exercise its power under section 17 against this third party,[44] which is also what the court concluded when the third party approached the court against the interim measure.[45]

Conclusion

Through the course of this article, the author has tried to demonstrate the need, opportunity, and method for making arbitral tribunals truly independent of the courts, at least in the sphere of ordering interim measures. The stance of the legislature and the executive might always have been towards making India a hub for international arbitration, but until the courts abdicate their overly paternalistic approach in favor of greater autonomy for the arbitral tribunals, this stance cannot become a reality. There have been enough judgments reaffirming the point that courts enjoy only a supervisory role in matters of arbitration, by way of allowing third parties to approach the court under section 37 of the act the courts can still maintain that supervisory role even in the context of interim measure. But at the same time, by allowing arbitral tribunals to exercise their powers under section 17 against third parties, India will move a step closer to making arbitral tribunals truly independent and efficacious.

[1] Sundaresh Menon & Elaine Chao, Reforming the Model Law Provisions on Interim Measures of Protection, Asian Int’l Arb. J. 1, 1 (2006).

[2] Id. 1-2.

[3] UNCITRAL, Report of the United Nation Commission on International Trade Law on the Work of its Thirty-Ninth Session, ¶ 93, U.N. Doc. A/61/17 (July 14, 2006), https://unctad.org/system/files/official-document/a61d17_en.pdf.

[4] Emmanuel Gaillard, Reflection on the Use of Anti-Suit Injunctions in International Arbitration, in Reflection on the Use of Anti-Suit Injunctions in International Arbitration 203, 204 (Julian D.M. Lew & Loukas A. Mistelis eds., 2006).

[5] UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the Work of its Forty-Third Session, U.N. Doc. A/CN.0/589 (October 12, 2005).

[6] See Emmanuel Gailliard, Anti-Suit Injunctions Issued by Arbitrators, in International Arbitration 2006: Back to Basics? 235, 238 (Albert Jan Van Den Berg ed., 2008).

[7] Republic of Ecuador v Occidental Exploration [2006] EWHC (Comm) 345, 1 Lloyd’s Rep 773 (Eng.).

[8] Id. ¶ 125.

[9] Id. ¶ 125.

[10] Menon & Chao, supra note 1, at 10.

[11] Millicom International Operations B.V. and Sentel GSM SA v. The Republic of Senegal, ICSID Case No. ARB/08/20.

[12] Millicom International Operations B.V. and Sentel GSM SA v. The Republic of Senegal, ICSID Case No. ARB/08/20, Decision on the Application for Provision Measures (09 December 2009).

[13] Id.

[14] Ceskoslovenska Obchondi Banka (CSOB) v Slovak Republic, ICSID Case No. ARB/97/4.

[15] Ceskoslovenska Obchondi Banka, Procedural Order No. 4 (11 January 1999).

[16] Ceskoslovenska Obchondi Banka, Procedural Order No. 5 ¶¶ 2-3 (1 March 2000).

[17] M/S Value Advisory Services v. M/S ZTE Corporations & Ors., 2009 SCC OnLine Del 1961, ¶¶ 12-13.

[18] Section 9 of the Arbitration Act provides for court-ordered interim measures for aiding the arbitration proceedings.

[19] M/S Value Advisory Services, ¶ 14.

[20] Gatx India Pvt. Ltd. v Arshiya Rail Infrastructure Limited, 2014 SCC OnLine Del 4181, ¶ 66-72.

[21] See Goyal Mg Gases v Air Liquide Deutschland Gmbh, 2006 SCC OnLine Del 1285.

[22] See Blue Coast Infrastructure Pvt. Ltd. v Blue Coast Hotels Ltd. & ANR, O.M.P. (I)(COMM) No. 35/2020 (Delhi High Court).

[23] Id. ¶ 26-27.

[24] Id.

[25] Gaillard, supra note 6, at 238.

[26] See Alka Chandewar v. Shamsul Ishar Khan, (2017) SCC OnLine SC 758. The court took note of the recommendations made by the Law Commission for providing teeth to the orders of an arbitral tribunal under section 17. The court went on to say that, “[p]ursuant to this report, sub-section (2) to Section 17 was added by the Amendment Act 2015, so that the cumbersome procedure of an Arbitral Tribunal having to apply every time to the High Court for contempt of its orders would no longer be necessary. Such orders would now be deemed to be orders of the Court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the Court.”

[27] Arbitration and Conciliation Act, 1996, § 9(3) (India).

[28] Bishnu Kumar Yadav v. M.L. Soni & Sons, 2016 SCC OnLine Cal 1420, ¶ 5.

[29] Lanco Infratech Limited v. Hindustan Construction Company Limited, 2016 SCC OnLine Del 5365, ¶ 14.

[30] Sundaram Finance Limited v. P. Sakthivel, 2018 SCC OnLine Mad 3080, ¶ 10-13.

[31] Prabhat Steel Traders Pvt. Ltd. v. Excel Metal Processors Pvt. Ltd., 2018 SCC OnLine 2347.

[32] Id. ¶¶ 5-28.

[33] Id. ¶ 41.

[34] Id. ¶ 102.

[35] Id. ¶¶ 42-48.

[36] See Prabhat Steel Traders Private Limited v Excel Metal Processors Private Limited, 2018 SCC OnLine 2347.

[37] See Blue Coast Infrastructure Pvt. Ltd. v. Blue Coast Hotels Ltd. & ANR, O.M.P. (I)(COMM) No. 35/2020 (Delhi High Court), ¶ 27.

[38] Dickson Valora Group (Holdings) Co. Ltd. v. Fan Ji Qian, [2019] HKCFI 482.

[39] See GM1 & GM2 v. KC, [2019] HKCFI 2793.

[40] See Giorgio Armani SpA v. Elan Clothes Co, [2019] HKCFI 530. The court clarified that even though the parties might not have categorically mentioned that all disputes arising out of this agreement will go to arbitration, a rational businessman would want all the disputes arising out of the same contract to be adjudicated upon by the same forum in the interest of expediency and efficiency.

[41] CERF Finance Ltd. v. Puri Constructions Ltd., 2000 (55) DRJ, 736.

[42] Id.

[43] See Prabhat Steel Traders Private Limited v Excel Metal Processors Private Limited, 2018 SCC OnLine 2347.

[44] Id. ¶ 102.

[45] Id.

*Aditya Kumar Singh is a penultimate year student at the National Law School of India University, Bangalore. He has a keen interest in Arbitration, International Criminal Law, and IT Law.