Anti-suit injunctions are creatures of the common law designed to prevent one party to an arbitration agreement from pursuing a court or arbitration action in another jurisdiction on the same matter in violation of that agreement.
In Part I of this article, published in the February edition, we discussed the historical context and examined two common law-based jurisdictions (UK and U.S.) in light of two key judicial decisions coming out of England and the European Court of Justice. The first, a 2004 ECJ ruling in Turner v Grovit,1 curtailed the English courts’ use of anti-suit injunctions against parties pursuing litigation in the courts of EU Member States, based on Regulation 44/2001 concerning the jurisdiction of courts and the recognition and enforcement of judgments (Regulation). The second case, West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA,2 finds the English House of Lords referring to the ECJ a case to decide whether or not anti-suit injunctions are still available to restrain court proceedings brought in breach of an arbitration agreement.
In Part II, we examine the positions of three civil law-based jurisdictions (Germany, Switzerland and Brazil) with regard to anti-suit injunctions and, in the conclusion, present strategies that parties may wish to consider in order to protect the right to arbitrate against the risk of circumvention through competing litigation.
The Civil Law Approach
The reluctance of German courts to grant anti-suit injunctions that potentially interfere with foreign proceedings is highlighted by the unavailability of case law in this area.3 Indeed, there is only one instance in which a German court has issued an anti-suit injunction, and that was not in the context of arbitration.4 In that case, a German married couple separated at a time when the law provided that only the “non-guilty” party was allowed to commence divorce proceedings. After two unsuccessful attempts in Germany, the frustrated husband initiated divorce proceedings in Latvia, which did not contain any such restriction.
The Reichsgericht decided that commencing divorce proceedings in Latvia represented an intentional violation of bonos mores, which, under Section 826 of the German Civil Code, is considered a tort. The Reichsgericht ordered the husband to discontinue the divorce proceedings pending in Latvia and awarded the wife damages for the legal costs she had to bear in the Latvian proceedings. However, proceedings abroad sometimes can be barred by initiating domestic proceedings. For example, Sec. 21 of the Brussels Convention does not allow parallel proceedings in two Member States. Thus, if a party fears being sued abroad, that party can bring a lawsuit in Germany to prevent similar litigation abroad.
As a defensive measure (colloquially referred to as the “Italian Torpedo”), a potential defendant may seek to preempt one action by bringing a parallel action before a slower-moving court, causing other, faster-moving European courts to decline their jurisdiction until this particular case is decided. Given the absence of case law on the admissibility of anti-suit injunctions under German law, the majority of legal commentators hold the view that such injunctions are not permissible.5 Some legal scholars argue that arbitration agreements that preclude a party from litigating the dispute before the courts are not binding.6 Others argue that anti-suit injunctions are unnecessary because an arbitration agreement obligates the parties not to bring court proceedings.
The German perspective holds that the ECJ should decide the West Tankers case to prohibit other EU Member States from issuing anti-suit injunctions in the context of arbitrations. The view of most German scholars and practitioners, in contrast to that expressed by England’s House of Lords, is that the arbitration exception in Section 1(2)(d) of the Regulation is not applicable to permit anti-suit injunctions in the arbitral context, because the question whether or not the arbitration agreement is valid and binding does not fall within the scope of the pending litigation. The mere fact that the foreign court has affirmed its jurisdiction under violation of the arbitral agreement cannot justify the exception of Article 1(2)(d) of the Regulation; otherwise, the mere alleging that an arbitral agreement existed would exempt any proceeding from the application of the Regulation.
Although German courts do not issue anti-suit injunctions, they will protect the parties’ contractual agreement to arbitrate by dismissing German lawsuits in deference to properly commenced arbitrations. The German Act on Civil Procedure (ZPO) enforces both domestic and foreign arbitration agreements between the parties. Where a claimant brings court proceedings that would be covered by an arbitration agreement, the court will dismiss the claim on the basis of lack of jurisdiction (unless the arbitration agreement is ruled null and void or inoperative) and the claimant will have to bear all the costs as well as the defendant’s legal fees.
The defendant must raise the defence that arbitration is mandatory prior to the first oral hearing. Otherwise, the defendant’s willingness to appear at a hearing before the court will be deemed to be an acknowledgement of that court’s jurisdiction. Prior to the constitution of the arbitral tribunal, an application may be made to the court for determination as to whether there is a binding arbitration agreement. Where a claim or application has been brought, arbitral proceedings may nevertheless be commenced or continued, and an arbitral award may be made, while the issue is pending before the court.
Whereas common law courts exercise their broad equitable power to achieve just results, including anti-suit injunctions, civil law countries do not confer comparable equitable power to their courts. However, the violation of an exclusive arbitration clause will lead to the dismissal of a court action in many of the civil law-based countries that are also members of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention or NYC). The provisions of the NYC are considered German law. Pursuant to Article II (3) of the NYC, the court of a contracting state, when faced with a dispute in respect of which the parties have agreed to arbitrate, is obliged, upon the request one of the parties, to refer the dispute to arbitration, unless the arbitration agreement is found to be null and void, inoperative or incapable of being performed. In this way, agreements to arbitrate are protected by the clear position that, if a lawsuit is initiated, it must be dismissed.
In sum, anti-suit injunctions are neither available nor, in most cases, necessary, under German law. Further, the view from the German perspective is that the ECJ referral in West Tankers will be the kiss of death for anti-suit injunctions issued by EU Member States and aimed at judicial proceedings before the courts of fellow EU Member States.
Swiss courts do not grant anti-suit injunctions in support of arbitration, either in national or in international cases. The Swiss legal system ranks sovereignty principles high and grants each court or arbitral institution the power to decide on its own jurisdictional competence. Chapter 12 of the Swiss Federal Act on International Private Law sets out rules on arbitration proceedings, but does not provide a rule allowing a state court to restrain foreign proceedings or to compel a party to arbitrate. Nor do other provisions of the Swiss Federal Act on International Private Law. Similarly, the Lugano Convention, a parallel convention to the Brussels Convention, is interpreted as not providing sufficient ground for anti-suit injunctions in support of arbitration. Finally, according to Swiss scholars, the New York Convention does not provide support for such a measure either.
Indeed, an anti-suit injunction order would be at odds with the Swiss approach to complex litigation, which focuses on avoiding the existence of conflicting decisions on a national level. For that purpose, the principles governing lis pendens, res iudicata and the enforcement of awards, anchored both in the Swiss Federal Act on International Private Law and in the Lugano Convention, are considered to provide sufficient rules.
The Lugano Convention, applicable in Switzerland, is generally interpreted comparably with the Brussels Convention. The Turner decision of the ECJ made clear that, under the Brussels Convention, there was no room for anti-suit injunctions to prohibit concurrent litigation. But, both the Brussels Convention and the Lugano Convention exclude arbitration from their fields of application. Accordingly, the outcome of the West Tankers case will show whether anti-suit injunctions in the particular context of arbitration will survive in EU Member States. However, even if the ECJ were to adopt the views advanced by England’s House of Lords in favour of anti-suit injunctions in the arbitral context, Switzerland would still lack an explicit legal ground allowing such a measure, and it is highly improbable that such a ruling would have any substantial influence on the Swiss approach.
The House of Lords (as well as certain commenting scholars in the UK) have expressed concerns that a ruling barring English courts from granting anti-suit injunctions in support of arbitration would make all EU Member States less attractive as venues for arbitration by comparison with non-EU jurisdictions. But from a Swiss perspective, this concern is largely unfounded.
Although Switzerland does not offer anti-suit injunctions, it enjoys an excellent reputation as a venue for arbitration proceedings. According to the figures published in an ICC International Court of Arbitration Bulletin in early 2007, Switzerland once again occupied the leading position of arbitrators confirmed or appointed and continued to be the second most commonly chosen place for ICC arbitrations after France in 2006.6
The Swiss view toward anti-suit injunctions was reflected in a May 2005 Geneva trial court decision on a request to enjoin both a party to an arbitration agreement and the arbitral body from proceeding with arbitration. The court denied the request because the specific requisites for interim relief were not satisfied, but also made clear that granting such a measure, flagged as an anti-suit injunction, would conflict with the principle that a Swiss court shall decide on the jurisdiction of an arbitral body only after this body has done so itself.8
Responding to a previously rendered and highly criticised decision of the Federal Supreme Court (the “Fomento” decision),9 the Swiss legislature has addressed the concern that parties to an arbitration agreement, by filing a suit in the court of a foreign state, could successfully block an arbitral institution in Switzerland from proceeding. Following the adoption of Art. 186 (1bis) of the Swiss Federal Act on International Private Law, a Swiss arbitral body may now consider its jurisdiction despite a foreign state court or arbitral court procedure previously filed on the same issue and between the same parties. Should the Swiss arbitral body declare itself competent, its rulings in the matter will have full effect in Switzerland despite pending foreign proceedings. Further, final decisions of the foreign court can not be enforced after the Swiss arbitral award is made because two contradictory decisions within one jurisdiction cannot be upheld and are clearly against the “ordre public.” That said, the decision of the arbitral court to proceed will not have an anti-suit effect abroad and the parties will not be enjoined from proceeding.
As the most popular non–EU venue for arbitration in Europe, Switzerland clearly has not suffered a competitive disadvantage by the lack of anti-suit injunction measures in the Swiss legal system. From the Swiss point of view, an ECJ West Tankers decision limiting the availability of anti-suit injunctions in support of arbitration in the EU will confirm the Swiss approach and will not have the dire consequences for the EU predicted by the English House of Lords.
While it may have taken some time to develop, Brazil can now be considered an effective player10 in the arbitration market and, more importantly, an arbitration-friendly country.11 This evolution began with the enactment of the new Brazilian Arbitration Law12 (Arbitration Law) in 1996, and was consolidated by the Supreme Court’s 2001 decision upholding the law’s constitutionality. It was further solidified by Brazil’s ratification of the NYC in 2002, and the continuing establishment of a pro-arbitration body of case law.
After struggling for a number of years with the concepts and principles of the new Arbitration Law, local courts began to conclude that anti-suit injunctions were not a valid remedy under Brazilian law. They also concluded that they lacked jurisdiction to issue the corollary “anti-arbitration injunction” (seeking to restrain an arbitration begun outside Brazil by one party to an arbitration agreement).13 According to Brazilian scholars, the courts took this approach because anti-suit injunctions violate the “Competência-Competência Principle” (Kompetenz-Kompetenz)14 – used by an arbitration tribunal to establish its standing (or competence) to hear a matter.
Brazilian Arbitration Law encompasses both the Separability and the Kompetenz-Kompetenz Principles in Article 8.15 As a result, one party to an arbitration agreement may compel the opposing party to arbitrate a dispute. In addition, the State judicial system is prevented from making an initial ruling on the validity of the arbitration agreement and will only be able to adjudicate the dispute if the arbitrators decide that they lack jurisdiction, or if one of the parties files suit seeking the annulment of the arbitral award under Article 32 of the Arbitration Law.
It is important to underline that the Arbitration Law amended the Brazilian Code of Civil Procedure to include the existence of an arbitration agreement as a separate ground for dismissing without prejudice a case brought before local courts in violation of the arbitration agreement.16 Having such an express provision in the statute governing the rules of civil procedure might seem irrelevant from a common-law perspective, but in a civil-law country such as Brazil, it was vital for the development of the arbitration system.
In this way, Brazil adopted a system granting a “chronologic priority”17 to the arbitrators to rule on their own jurisdiction, and such chronologic priority applies even if one party challenges the scope or validity of the arbitration agreement itself. The intervention of the courts is deferred to a subsequent stage, as they can only review the issue of the arbitrators’ jurisdiction after the arbitrators’ decision has been made. If the arbitrators decide that the arbitration clause is valid, the arbitration will proceed until the arbitral award is granted.18
The only rare exception to this temporal precedence occurs when the courts are faced with an arbitration agreement that is manifestly void, so that there is no need to produce any other evidence in order to decide on the illegality of the arbitration agreement.19 In those extraordinary cases, based on the last part of Article II.3 of the NYC,20 the courts are allowed to decide on the arbitrators’ jurisdiction. The COPEL case is one of the leading cases on this subject. Companhia Paranaense de Energia -COPEL, a Brazilian state-controlled company, and UEG Araucaria Ltda, a Brazilian foreign-controlled company, entered into a Power Purchase Agreement. The contract was governed by Brazilian Law and contained a dispute resolution clause providing for ICC arbitration in Paris.
When COPEL suspended payments under the contract, UEG commenced an ICC arbitration, alleging breach of contract and seeking damages. COPEL then filed suit in Brazil before the State Court of Paraná seeking a declaration that the arbitration agreement was void because state-controlled companies could not submit their disputes to arbitration as they involve public-related matters. The trial court agreed with COPEL and, in June 2003, granted an anti-arbitration injunction preventing UEG from participating in the ICC arbitration in Paris or suffer a U.S. $250,000 daily penalty.
UEG then sought a preliminary injunction to allow it to continue the Paris arbitration. In June 2004, the Court of Appeals of Paraná granted the injunction sought by UEG. Applying the Kompetenz-Kompetenz principle, the Court of Appeal held that because the parties agreed to arbitrate any contractual dispute, it was for the arbitrators and not for the state court to rule on the validity of the arbitration agreement and, consequently, on the arbitrators’ own jurisdiction. COPEL filed a writ, and one month later the president of the Court of Appeal, sitting alone, reversed the decision. As a consequence, UEG was again prohibited from participating in the Paris arbitration. The injunction granted by the president of the Court of Appeal remained in force for fourteen months, but the writ was later dismissed by the Court, allowing UEG to again participate in the arbitration.
While the rulings flipped several times in the COPEL case, it is important to recognise that ultimately, the anti-arbitration injunction was defeated and that UEG was allowed to participate in the Paris arbitration.21 It took time, and some unexpected costs to the parties, for the Brazilian courts to develop their understanding and position on the relationship between arbitration and court proceedings. But this effort culminated in the acceptance of arbitration as a valid means of alternative dispute resolution. It is clear that if the COPEL case (and the other leading Brazilian anti-suit injunction cases) occurred today, they would be decided faster, with local courts effectively and decisively protecting the parties’ rights to arbitrate.
Rather than issuing anti-suit injunctions, Brazil protects the right to arbitrate by dismissing any anti-suit injunction filed within its own borders and by refusing to recognise foreign judgments obtained in violation of the parties’ agreement to arbitrate.
In light of the varied approaches taken by each of the civil and common law-based jurisdictions discussed in this two-part article, the question becomes: how should a party proceed when that party is concerned that its right to arbitration will be thwarted by an opponent’s competing litigation?
To begin, the parties can decide that this risk is minimal, and they need not do anything to address it. As the approaches of Germany, Switzerland and Brazil teach, a country does not need to offer anti-suit injunctions to be a desirable arbitral forum, and not all nations view anti-suit injunctions as essential to preserving arbitral rights. It particularly makes sense for a party to accept this approach if it believes that its opponent is unlikely to bring an action in another jurisdiction. For EU actions, as long as the competing litigation is within the EU, the party that prefers the agreed-upon arbitration can be fairly confident that the court where the improper litigation is filed will dismiss the suit.
But the reasoning above does not make sense in every case. For example, when a party in an EU Member State is contracting with a counterparty based in certain developing nations and elsewhere, there may be reason to be concerned that the counterparty will bring suit at home rather than submit to arbitration as agreed. The counterparty’s home country may choose to hear the suit rather than dismiss in favour of the agreed-upon arbitration,22 and the EU Member State party may have assets (bank accounts, real estate) exposed in the developing nation. In such cases, the protection an anti-suit injunction offers may be paramount.
If a party determines that anti-suit injunction protection may be necessary to fully protect its interests, there are several means to ensure its availability. First, the party can select English or U.S. courts to seek the injunction, as both will grant anti-suit injunctions. Even if West Tankers eliminates anti-suit injunctions by English courts aimed at proceedings in the courts of EU Members States, England still will remain a viable option for obtaining anti-suit injunctions outside of the EU.
Finally, the parties may include a contractual provision specifying that either party may seek preliminary relief in a U.S. court because, as was discussed in part one of this article, in appropriate circumstances, U.S. courts will issue anti-suit injunctions to protect the right to arbitrate in venues outside of the U.S. Generally, for this option to work, one of the parties to the contract should have some connection to the chosen U.S. forum.
Thus, the diversity of views among nations on how best to prevent the undercutting of arbitration rights by the improper commencement of a competing litigation ultimately affords parties a breadth of potential solutions to consider, depending on their specific needs and preferences.
Dr. Mark C. Hilgard, a partner in the Frankfurt office of Mayer Brown LLP, focuses on international arbitration and civil and multi-district litigation. E-mail: email@example.com.
Alex C. Lakatos, a partner in the Washington, D.C. office of Mayer Brown LLP, focuses on complex international litigation, particularly on behalf of non-U.S. financial institutions. E-mail: firstname.lastname@example.org.
Daniela Caleff is a visiting attorney from Switzerland in Mayer Brown’s Washington, D.C. office. E-mail: dcaleff@ mayerbrown.com.Sergio Savi is a visiting attorney from Brazil in Mayer Brown’s New York office. He focuses on complex international litigation and arbitration. E-mail: email@example.com.
1 C-159/02 Turner v Grovit  ECR I-3565.
2 West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA  UKHL 4  1 All E.R.
3 Sec. 32b of the ZPO can be regarded as a blocking statute: for the qualification as a blocking statute of § 11 SeeaufgabenG, see Geimer, IZPR, 5. A. 2006, Rn. 176. A blocking statute issued by the EU was, for example, Regulation 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, OJ L 309, 29.11.1996, p. 1-6, which aimed at protection against the Helms-Burton Act and its extraterritorial effects. Note that we would hesitate to qualify the German reservation under Art. 23 of the Hague Evidence Convention, designed to preclude extra-territorial discovery in Germany, as a “blocking statute.”
4 RGZ 157, 136 et seq.
5 Commentators who conclude that anti-suit injunctions are not permitted include Geimer, IZPR, Randnr. 1118; Gottwald in FS Habscheid, S. 120 f; Schack, IZVR,
304. Those who reach the opposite conclusion include: Schütze, WM 1986, 633, 636; Spickhoff in FS Deutsch, 346; Koch, Grenzüberschreitender einstweiliger Rechtsschutz, in: Herausforderungen des internationalen Zivilprozessrechts, 85, 98; Kurth, Inländischer Rechtsschutz gegen Verfahren vor ausländischen Gerichten, 1988; Stürner, Der Justizkonflikt der USA und Europa, 1986, S. 52; Stürner, ZZP 1996, 224, 227; Schröder in FS Kegel, 1987, S. 523; Lenenbach, Anti-Suit Injunctions in England, Germany and the U.S., Loy. L.A. Int’l + Comp L.J., 257, 278 ff.
6 Schütze, Handbuch des Schiedsverfahrens, § 127 (1985).
7 ICC International Court of Arbitration Bulletin, Vol. 18 / No. 1 – 2007, p. 10.
8 See translation of Decision of 2 May 2005, Case No. C/1043/2005-15SP, Republic and Canton of Geneva Judiciary, Court of First Instance, Air (PTY) Ltd. v International Air Transport Association (IATA) and C. SA in liquidation published in ASA Bull. 4/2005, p. 728 and commented by Marco Stacher in “You Don’t Want to Go There – Anti-suit Injunctions in International Commercial Arbitration, published in ASA Bull. 4/2005, p. 640.
9 See Federal Supreme Court Decision 127 III 279, Fomento de Construcciones y Contratas S.A. v. Colon Container Terminal S.A.
10 According to a 2007 report from the ICC’s International Court of Arbitration, Brazil was the leading Latin American country in number of arbitration proceedings in 2006, ranking sixth worldwide, behind France, Switzerland, the UK, the U.S., and Germany.11 Several Brazilian Statutes expressly provide for and even give incentives to the use of arbitration to resolve administrative disputes. Examples include the Petroleum Law (9.478/97), Telecommunications Law (9.472/97), Law of Concessions and Permissions of Public Services (8.987/95) and, more recently, the Public-Private Partnership Law (11.079/2004).
12 Law 9.307/96. The Brazilian Arbitration Law was inspired by various texts including the UNCITRAL Model Law on International Commercial Arbitration but, contrary to other Latin American countries, Brazilian Legislators incorporated some local cultural and procedural features into the law.
13 The leading case recognising that Brazilian Courts lack jurisdiction to order the stay of arbitral proceedings taking place in a foreign country is Renault v Caoa, AgIn. 285.411-4/0 – 5a Câmara de Direito Privado do Tribunal de Justiça de São Paulo,
14 A party that agrees to arbitrate all disputes arising out of the contract and that later challenges the validity of the arbitration agreement by pursuing litigation before State Courts is also deemed to violate the objective good-faith principle (i.e., the prohibition of the venire contra factum proprium), since that attitude frustrates the parties’ legitimate expectations.
15 Article 8 of Law 9,037/96 reads as follows: “An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” Article 8, sole paragraph: “The arbitrator shall decide, at his own motivation or on request by the parties, issues concerning the existence, validity and efficacy of the arbitration agreement and of the contract which contains the arbitration clause.”
16 Law 5,869/73 (Code of Civil Procedure) article 267, VII.
17 Règle de priorité Chronologique – Philippe Fouchard, Emmanuel Gaillard and Berthold Goldman. On International Commercial Arbitration, Haia: Kluwer Law International (1999), at p. 415.
18 Law 9,307/96, article 20, §2o “When the arguments are not accepted, the arbitration shall proceed normally, subject however to review of that decision by the competent judicial body, at the time a petition for setting aside the award is filed, as provided by article 33 of this law.”
19 What can and cannot be considered a manifestly void agreement is not clear and still subject to discussions among national and international scholars. (In this sense PITOMBO, Eleonora C. Os efeitos da Convenção de Arbitragem – Adoção do Princípio Kompetenz-Kompetenz no Brasil, in Arbitragem: estudos em homenagem ao Prof. Guido Fernando da Silva Soares, in Memorian: Atlas, São Paulo, 2007, p. 334.)
20 “. . .unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” It is worth mentioning that some Brazilian scholars advocate that even in those cases State Courts would only be allowed to interfere after the arbitrators’ decision on their own jurisdiction.”
21 “Medida Cautelar Inominada,” n. 160213-7.
22 See Karaha Bodas Co., L.L.C. (KBC) v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, describing a case in which an Indonesian courtheard an action to “annul” Swiss arbitration award.