Series
Blogs
Series
Blogs
In LLC Eurochem NW-2 v Tecnimont SPA and another [2023] EWCA Civ 688, the English Court of Appeal considered a situation where a party to arbitral proceedings, in order to improve its position therein, intervened in proceedings involving different parties (and a different cause of action). Adopting a broad view of the arbitration agreement, the Court decided this was caught by an anti-suit injunction.
Factual background
LLC Eurochem NW-2 (NW), a Russian company, engaged two contractors, Tecnimont (T) and MT Russia, (the Contractors) to develop an ammonia plant. The relevant contracts were governed by English law and contained materially identical arbitration agreements (ICC arbitration, seated in London). Pursuant to the contracts, the Contractors caused banks to advance performance bonds to NW.
The Contractors stopped working on the project. NW tried to terminate the contracts, and call on the bonds. A number of banks refused the call on the basis that NW was ultimately controlled by a designated person under EU sanctions against Russia.
In summer 2022, the Contractors commenced an arbitration against NW. They sought declaratory relief that the calls on the bonds were, due to the sanctions issue, unlawful. Also, T relied on it to say that T was not in breach of contract as, being an Italian company, T could no longer, lawfully, perform.
The question of who controlled NW was therefore before the tribunal. To support its position, T relied on a decree issued by the Italian Finance Ministry. That had frozen the assets of Agro, an Italian company in NW’s group, on the basis that Agro’s parent company was controlled by the designated person. NW shared that parent, so it helped T in proving the same was true of NW.
The anti-suit injunction (ASI)
Concurrently, NW obtained a (pre-emptive) ASI from the English High Court preventing the Contractors from commencing foreign proceedings to restrain payment of the bonds (the Contractors had history of, in similar circumstances, taking such action). The injunction was granted. Its practical effect, at that point, was to stop the Contractors from pursuing proceedings against NW that they wished to take in France/Italy.
Agro then commenced proceedings in Italy against the Ministry of Finance seeking to annul the decree (the Italian Proceedings). In early 2023, T applied to intervene, arguing for the decree to be upheld. Agro opposed; asserting that T only wanted to buttress its position in the arbitration against NW.
Similarly, in England, NW said that T had now, by its intervention in the Italian Proceedings, breached the ASI. The High Court agreed, and the matter went to the Court of Appeal.
Court of Appeal
By a majority the Court of Appeal decided that T’s intervention was in breach of the ASI. T’s arguments to the contrary were essentially been two-fold. The first [39-40] was that the wording of the injunction (which referred to “commencing or pursuing any claims and or/proceedings [elsewhere] .. for the purpose of…impairing payment under the bonds…”) did not extent to its intervention. The majority disagreed. They thought that the wording was clear and plain [53-58,126].
T's second argument was, relatedly, that its actions could not be said to be a breach of the relevant arbitration agreements. The Italian Proceedings were beyond their scope as they did not involve any dispute between T and NW. And, the wording of the injunction should be read consistently since an ASI granted on the basis of an arbitration agreement could only extend to enforcing its terms [41]. The majority, however, disagreed and thought the agreement had been breached. Although their reasons were expressed a little differently [60-65,127] the gist appeared to be that: the definition of disputes in the arbitration agreements extended to issues arising between NW and T in relation to the contracts. The ultimate control of T was such an issue. The sole reason for T being involved in the Italian Proceedings concerned its dispute with NW. And so, fundamentally, it was seeking to litigate in Italy the very issue to arbitrate. Or, in more colourful language, its position was a “cover or façade” for that dispute and a “vehicle” for a “proxy war” on NW.
Comment and conclusion
Some might find the Court’s conclusion as to the scope of the arbitration agreement a little surprising. Formally, the Italian Proceedings were in some ways very different from a dispute between NW and T. However, the Court appears to have been concerned by T’s conduct. It seems clear that it regarded this as, simply, an attempt by T to place its dispute with NW into third party proceedings for its own ends (T’s attempts to say it had acted on a “good faith” understanding of the ASI were rejected). Not acting in such a way was to be regarded as part of the bargain.
This is perhaps not as radical as it sounds; although the litigation raises an interesting question about the legal basis of the injunction in such situations. For instance, the English court has, in the past, granted ASIs in somewhat similar circumstances; e.g. Bannai v Ertz [2013] EWHC 368. In that case, however, the injunction was based on reasons of vexation/oppression. Might that be more apt to describe the mischief in hand? If so, is it desirable for a looser view on construction to be deployed to reach the same end? (some of the potential artificialities of doing so were pointed out in a lengthy dissent by Nugee LJ). The story may be set to continue, T is reportedly considering an appeal to the UKSC.
Click here for a copy of the judgment.
3 July 2023
Up next