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Partner Simon Bushell, Professional Support Lawyer Johnny Shearman and Associate Elliott Fellowes discuss the case of Sabbagh v Khoury and others [2019] EWCA Civ 1219 and explore the limits of the English court’s powers in relation to foreign arbitration.

Simon, Johnny and Elliott’s article was published in the September issue of PLC Magazine and can be found here.

In upholding an anti-arbitration injunction against a foreign arbitration, the Court of Appeal has explored the limits of the English court’s powers in relation to this rarely granted remedy (Sabbagh v Khoury and others [2019] EWCA Civ 1219). In doing so, it considered English legislation and the New York Convention, as well as the applicability of the principles that attach to the more commonly used anti-suit injunction (see box “Restraining foreign proceedings”). While reaffirming its powers to intervene in overseas arbitrations, the court emphasised that they should be exercised sparingly.

The dispute

The recent decision in Sabbagh is the latest in the long-running dispute involving the estate of the late Lebanese businessman, Mr Hassib Sabbagh. Mr Sabbagh’s daughter, Ms Sana Sabbagh, brought High Court proceedings against various defendants, including members of her family and Consolidated Contractors Group SAL (CCG), the ultimate holding company of the largest engineering and construction group in the Middle East. Ms Sabbagh brought the proceedings in England as the first defendant, Ms Sabbagh’s cousin, was domiciled in England and Wales, and therefore was the anchor defendant on which the other defendants were brought within the jurisdiction of the English court. Ms Sabbagh alleged that the defendants had conspired to misappropriate her father’s assets and deprive her of her entitlement to shares in CCG.

Following the commencement of the English proceedings, some of the defendants initiated arbitration proceedings seated in Lebanon under an arbitration agreement contained within CCG’s articles of association. They sought a declaration of the various parties’ entitlements to shares in CCG (the shares claim) and a determination of the balance of any monies owed by CCG to Mr Sabbagh’s shareholder account (the assets claim).

Ms Sabbagh declined to participate in the Lebanese arbitration. The defendants argued that Ms Sabbagh’s claims fell within the arbitration agreement and should be stayed in favour of the Lebanese arbitration. The Court of Appeal refused to stay the English proceedings on the basis that some of the claims being heard in the English proceedings fell outside of the scope of the arbitration agreement ([2017] EWCA Civ 1120).

Ms Sabbagh applied for an injunction to restrain the defendants from continuing the arbitration. The High Court granted the injunction on the basis that it considered that the Court of Appeal had already determined that the arbitration agreement did not cover all of the claims in the English proceedings and so it would be oppressive and vexatious if the arbitration were allowed to continue ([2018] EWHC 1330). The defendants appealed.

The appeal

The parties agreed that the assets claim fell outside the scope of the arbitration agreement but disagreed as to whether the same could be said in respect of the shares claim. Critically, before addressing the substantive grounds of appeal, the Court of Appeal found the shares claim to be subject to the arbitration agreement. This clarification was important when the court came to address the substantive grounds of appeal, which were that:

• The English court has no jurisdiction to grant an injunction to restrain an arbitration with a foreign seat (the first ground).

• The English court should not grant an injunction to restrain a foreign arbitration on grounds that the arbitration was vexatious and oppressive unless England is the natural forum for the dispute (the second ground).

The first ground

The court considered the power to grant an injunction under section 37 of the Senior Courts Act 1981 (section 37). It is established that, while this power is not unlimited, it can be exercised to prohibit conduct that would be vexatious and oppressive, including in appropriate cases to restrain the pursuit of foreign court proceedings. The court concluded that a similar power to restrain foreign arbitrations must exist, unless section 37 has been implicitly modified by statute to exclude an anti-arbitration injunction. Turning to the Arbitration Act 1996 (1996 Act), the only candidate that could be said to fetter the scope of section 37, when read in conjunction with the New York Convention, the court found no prohibition on its power to grant an anti-arbitration injunction.

The court accepted the defendants’ submission that the court should not grant an anti-arbitration injunction where the dispute falls within an arbitration agreement. An anti-arbitration injunction will not be granted in respect of a claim that, if brought in English proceedings, would require the English courts to grant a stay under section 9 of the 1996 Act. As the shares claim fell within the arbitration agreement, an anti-arbitration injunction in respect of that claim would be wholly contrary to the fundamental principle underpinning the New York Convention and the 1996 Act of respecting and giving effect to arbitration agreements.

The second ground

The court rejected the defendants’ submission that the English court should not grant an injunction to restrain a foreign arbitration unless England is the natural forum for the dispute. It drew a distinction between anti-suit and anti-arbitration injunctions. The rationale that England must be the natural forum as regards anti-suit injunctions is firmly established in case law. As anti-suit injunctions interfere (albeit indirectly) with a foreign court’s jurisdiction, they must be restricted to circumstances in which there is justification for this interference.

In contrast, rather than interfering with the jurisdiction of a foreign court, anti-arbitration injunctions interfere with the fundamental principle of international arbitration that courts should uphold arbitration agreements. The starting point for the English court is to determine whether the issues in the English proceedings fall within the scope of the arbitration agreement. If they clearly do so, the courts will not interfere. However, where this is not the case, there is no requirement to demonstrate that England is the natural forum in order for an anti-arbitration injunction to be granted.

This being said, save for cases dealing with an exclusive jurisdiction agreement, the grant of an anti-arbitration injunction remains an exceptional step, appropriate only where the foreign arbitration proceedings are vexatious and oppressive. As can be seen from Sabbagh, if English proceedings are on foot, and the claims do not otherwise fall within an arbitration agreement, the continuation of foreign arbitral proceedings may be seen as vexatious and oppressive.

The court’s conclusion

In light of its findings, the court allowed the appeal as regards the shares claim and discharged the anti-arbitration injunction in respect of this element of the Lebanese arbitration. However, taking a significant step to restate its ability to interfere with foreign arbitral proceedings where appropriate, it dismissed the appeal and upheld the anti-arbitration injunction as regards the assets claim.

Practical implications

This decision could easily be seen as the English court flexing its muscles, especially in terms of asserting its power to grant anti-arbitration injunctions even where the underlying dispute has a limited connection with England; for example, the domicile of a single defendant. However, in practical terms, it is clear that the courts intend for this power to be used only in exceptional cases and the threshold has, understandably, been set high. It is doubtful therefore that we will see a flood of anti-arbitration injunctions flowing from this decision; barring, of course, those granted because of an exclusive jurisdiction agreement.

With that said, practitioners must take note of this decision when dealing with issues of jurisdiction. There is now clear authority that says, while section 37 enables the court to grant both anti-suit and anti-arbitration injunctions, the rationale for granting the two different injunctions is distinct and a separate understanding of how the two operate is required.