In Aquavita International SA v Indagro SA  EWHC 892 (Comm), the English Commercial Court granted an anti-suit injunction to restrain Brazilian court proceedings where those proceedings would be an attempt to “outflank” the parties’ arbitration agreement (rather than in aid of the agreed procedure). The case considers where the line will be drawn.
Indagro (the Defendant in these proceedings) chartered a vessel owned by Aquavita (the Claimant) to carry a cargo of ammonium sulphate (which Indagro had purchased from a third party seller) from China to a number of different ports in Brazil. The charterparty contained an arbitration clause.
In late January 2022, Aquavita received notice from the seller claiming that Indagro had not made the payment due under the sale contract and therefore instructed Aquavita not to discharge the cargo in Brazil.
However, on 28 March 2022, Indagro obtained an order from the 2nd Civil Court of the City of Sao Francisco do Sul (where 17,400mt of the cargo was due to be discharged) requiring Aquavita to discharge 17,400 mt of the cargo or face a daily fine of around US$100,000 plus possible criminal sanctions. This Order was made by way of emergency relief under Article 300 of the Brazilian Civil Procedure Code.
Aquavita applied to the English Commercial Court (without notice) for an anti-suit injunction requiring Indagro to withdraw the proceedings before the Brazilian Court, to set aside its order and to refrain from commencing any further proceedings to similar effect in relation to the remainder of the cargo. Fraser J granted the anti-suit injunction in relation to the remainder of the cargo, but refused to make any order in respect of the existing Brazilian Court proceedings because discharge of the 17,400 mt was almost complete. On the return date, Foxton J was required to decide whether to continue Fraser J’s injunction.
Foxton J upheld the anti-suit injunction. Reviewing the relevant legal principles, Foxton J noted that, under English law, it was long established that proceedings which are brought elsewhere than in the agreed forum for the purposes of security for a claim to be advanced in the agreed forum would not generally be made the subject of anti-suit injunctive relief, where the sole purpose of those proceedings is to obtain reasonable security for the claim which is to be arbitrated or litigated in the agreed forum. Foxton J identified three features of such permissible proceedings, being that
- the non-chosen court is not generally concerned with reaching a final decision on the merits of the claim, merely an interim decision that the merits are sufficiently arguable;
- the relief sought does not involve (even on an interim basis) the granting of the relief which would follow from the final enforcement of the parties’ substantive rights and obligations; and
- the relief can be said to be in aid of the substantive proceedings in the agreed forum, with limited value if no such proceedings are prosecuted.
Foxton J noted that the existing case law dealt with applications for security, rather than (as in the present case) applications for interim performance of a substantive obligation. However, whilst that factor alone did not render anti-suit relief appropriate, features 2 and 3 were absent in the present case. He held that the Brazilian Court Order had involved, in practical terms, the final determination of Indagro’s contention that Aquavita was obliged to discharge the relevant portion of the cargo. Upon questioning, counsel for Indagro could not identify what relief Indagro might seek in any arbitration, in support of which it might be said the Brazilian Court Order had been made. He therefore concluded that the Brazilian Court Order could not be said to have been made in support of the arbitration but was an attempt to outflank the arbitration agreement and, in substance, to obtain relief which would be final in effect from the Brazilian Court rather than the arbitral tribunal. Therefore, that order, and any similar proceedings in Brazil, had involved a breach of the arbitration agreement.
Finally, Foxton J noted that there was no reason why Indagro could not have sought interim relief from the tribunal or from the English court under s.44 of the Arbitration Act 1996.
This case is a helpful reminder of when, under English law, proceedings for relief in a non-contractual forum are a breach of the arbitration agreement, and when they are not. Generally, such proceedings will be permissible provided their effect (as a matter of substance rather than form) is to “hold the ring” before the substantive merits are determined in the agreed forum.
As alluded to above, the parties’ arbitration agreement, in this case, did not contain any express provision on the point. Often, however, parties will do so; in particular the rules of many major institutions often provide that applications for “interim” or “conservatory” measures are not per se inconsistent with the arbitration agreement (e.g. LCIA Rules 25.3, ICC Rules 28(2), SCC Rules, 37(5)). So, even where that is the case, it would seem that very similar distinctions will be in play in assessing such standards.
Click here for a copy of the judgment.
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Joanne Finnegan, Linklaters