Skip to content

Anti-suit injunction granted to protect arbitration agreement even though no arbitration: aes applied

30 January 2014

In the case of Boris Bannai v Eitan Shlomo Erez (Trustee in Bankruptcy of Eli Reifman) [2013] EWHC 3689 (Comm), 26 November 2013, the English Commercial Court denied an application to set aside an anti-suit injunction restraining the defendant from pursuing litigation against the claimant in Israeli courts, where the agreement between the parties contained an arbitration clause.

Under an agreement between the claimant, Mr Bannai, and a bankrupt individual, Mr Reifman (the Bankrupt), in 2002 (the Agreement) Mr Bannai was to account to Mr Reifman for 35% of the assets identified in the Agreement as well as 35% of the income derived from those assets. Mr Bannai allegedly failed to make the required contributions in breach of the Agreement. Mr Erez (the Trustee) filed a lawsuit against Mr Bannai in the Israeli courts alleging a breach of the Agreement, notwithstanding the fact that the Agreement, governed by English law, contained an arbitration clause with London as the seat of arbitration. The Agreement specifically provided for arbitration of “any differences of opinions and/or disputes [of] whatever type or kind between the Parties and/or between the JVC and/or the Parties’ Family Members (hereinafter: “the Dispute”), including in relation to the interpretation and application of the Agreement.”[1] It was common ground between the parties that the dispute fell within the arbitration clause.

The Israeli District Court refused to grant a stay. At the same time, the claimant commenced proceedings in England requesting an anti-suit injunction on account of the arbitration clause. An injunction was granted by Walker J on 31 July 2013 on the grounds that “the Israeli court having refused a stay pending arbitration, there was an imminent breach of the arbitration agreement contained in the English contract, by which the Trustee was bound as standing in the shoes of the Bankrupt, and which should be restrained”.[2] The injunction was extended by Hamblen J on 9 August 2013 to also prevent court proceedings in Israel against Mr Bannai’s son, David Bannai, and various companies.

Mr Erez applied to discharge the injunction, which was rejected by Burton J on 26 November 2013. Burton J’s judgment is interesting for its analysis and application of the Supreme Court’s decision in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust Kamenogorsk Hydropower Plant JSC (covered in the August/September 2013 Litigation Review).[3] In that case the Supreme Court found that an arbitration clause contains a negative promise not to bring foreign proceedings, which applies and is enforceable regardless of whether or not arbitral proceedings are on foot or proposed.[4] The Supreme Court held that the courts have broad powers to order anti-suit injunctions to protect arbitration clauses under s37 of the Senior Courts Act 1981. Accordingly, it upheld an anti-suit injunction even though AES had not commenced arbitral proceedings nor contemplated doing so.

Following the Supreme Court’s decision in AES Burton J held that the negative obligation not to bring foreign proceedings is implied in a positive obligation to arbitrate disputes. A claimant does not need to even contemplate bringing arbitral proceedings: “he is simply entitled to restrain proceedings being brought against him otherwise than by arbitration”.[5]

Burton J saw no reason why the dispute should not be resolved by arbitration. He rejected the Trustee’s argument that, as the dispute concerned insolvency proceedings, under Israeli law the Trustee could disclaim the Agreement, including the arbitration clause. He stated that: “it is unlikely that this would be a case in which the Israeli court would uphold an application to disclaim if it were made (…)”[6] Burton J noted in this regard that the question of disclaimer had not arisen in the Israeli proceedings and the Israeli court had not refused a stay on this basis.

The Trustee’s forum non conveniens arguments were also discarded, as they are not normally relevant in anti-suit injunction proceedings particularly where there is an exclusive jurisdiction clause or an arbitration agreement. The additional fees that would accrue due to arbitration in London did not make arbitrating onerous: significant costs could have been saved if the arbitration clause had been respected at the outset. The inconvenience caused by the Bankrupt being imprisoned in Israel could be mitigated by other means and did not amount to onerousness. Similarly, allegations of fraud by Mr Bannai did not affect the validity of the arbitration clause or proceedings.

In conclusion, Burton J continued the original injunctions granted by Walker J and Hamblen J, which covered David Bannai as a family member as well as the various companies in order to prevent the arbitration clause from being frustrated or circumvented.

Comment: This case is significant in its treatment of AES v Ust Kamenogorsk as clear, established law. It cements the position under English law that an anti-suit injunction can be granted where arbitral proceedings have not been commenced or where the applicant does not even intend to commence arbitration. On the basis of AES and Bannai, it appears that the English courts are likely to exercise this discretion in particular where the foreign courts have declined to stay proceedings contravening an arbitration clause. The judgment also confirms the jurisdiction of English courts to extend an anti-suit injunction to protect related parties from litigation to safeguard the efficacy of an arbitration clause.

Footnotes

1. Bannai v Erez (Trustee in Bankruptcy of Eli Reifman) [2013] EWHC 3689 (Comm), at paragraph 13.

2. Ibid., at paragraph 10.

3. [2013] 1 WLR 1889 S.C.

4. Bannai v Erez, at paragraph 3.

5. Ibid., at paragraph 12. 6. Ibid., at paragraph 22.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.