Judgment sets a worrying precedent for international arbitration

Posted: 28/03/2013

Enercon GmbH v Enercon (India) Limited [2012] EWHC 689 (Comm)

This case concerns a dispute between the German and Indian interests of Enercon which were together involved in a joint venture wind energy project in India. A dispute arose between the two in relation to an intellectual property licence agreement (IPLA), under which the claimant claimed to be owed royalties and other payments.

Background

The IPLA contained a dispute resolution clause (the clause) requiring the parties to try to resolve any dispute by mutual consultation. If the dispute was not resolved within 30 days, any party could then refer it to an arbitral tribunal. The clause specified that the arbitration would be conducted in English, the venue would be in London, and the provisions of the Indian Arbitration and Conciliation Act 1996 applied.

In March 2008 the claimant, Enercon GmbH, referred the dispute to arbitration. Both parties were required under the clause to appoint an arbitrator. The defendant, Enercon (India) Limited, denied the enforceability of the IPLA and the clause, and further argued that although the clause referred to the ‘venue of the arbitration proceedings’ being London, ‘venue’ was not synonymous with ‘seat’, and the seat of any arbitration under the IPLA was not London, but India. Despite this stance, the defendant ‘under protest’ appointed an arbitrator. Under the clause, a third arbitrator also needed to be appointed. In August 2008, the two arbitrators appointed advised that they were unable to appoint a third arbitrator and in that their view the clause was unworkable.

In the meantime, the claimant had issued proceedings in the Commercial Court in England seeking a declaration that the defendant was bound by the IPLA to refer disputes to arbitration, a declaration that the seat of the arbitration was England, and an anti-suit injunction to restrain other proceedings brought by the defendant in the Bombay High Court.

Before those applications could be heard, the defendant commenced proceedings in the Daman court in India seeking a declaration that the IPLA was not binding, a declaration that the defendant was therefore not bound by the arbitration agreement, and an anti-suit injunction restraining the English proceedings, which was granted on an interim basis in April 2008. The claimant appealed in the Daman court and succeeded in having the injunction set aside and obtaining an order for the dispute to be referred to arbitration, subject to a stay of the latter to give the defendant the opportunity to ‘approach’ the Bombay High Court.

The defendant then filed petitions in the Bombay High Court to quash certain orders that the Daman court had made in the claimant's favour. These were issued in September 2009 but by March 2012 had still not been heard and were not expected to be heard for another two to three years.

In November 2011, the claimant commenced further proceedings in England seeking the appointment of a third arbitrator and an anti-suit injunction prohibiting the defendant from pursuing proceedings in India. An interim anti-suit injunction was granted and in February 2012, a freezing injunction against the defendant was also granted.

Judgment

The applications before the English court included:

• an application from the claimant for the appointment of an arbitrator;
• an application from the claimant to serve an arbitration claim form out of the jurisdiction;
• an application from the defendant challenging the court's jurisdiction; and
• an application from the defendant to set aside or vary the two injunctions.

The English court found that because there was a dispute already pending before the Indian courts as to whether the seat of the arbitration was London or India, it was for the Indian court, not the English court, to decide the seat of arbitration. This was despite the judge, Eder J, commenting that he himself would have concluded that the seat of the arbitration was London.

In the circumstances, the court also found that it would not be appropriate to give permission for the arbitration claim form to be served out of the jurisdiction.

Eder J was somewhat reluctant in reaching this decision, given the delays in the Indian justice system which meant that this dispute will remain unresolved for several more years. However, because the claimant had taken part in the Indian proceedings initially instead of simply applying to the English court, he found that the English proceedings had to be stayed pending a decision from the Indian court.

Eder J gave weight to the principle of comity between courts in different jurisdictions in coming to these conclusions.

Comment

This decision shows that the courts in England will be reluctant to intervene in a matter when the dispute is already before the courts of another country, even where an arbitration clause is in place. It is concerning for parties who are trying to ensure that disputes are dealt with by way of arbitration, as it indicates that despite an arbitration clause being in place, the clause can potentially be circumvented by Indian or other foreign courts, and the English courts will not intervene.

This decision particularly highlights the fact that a party which participates in foreign proceedings will then find it difficult to persuade an English court to intervene and ‘wrest’ back the proceedings to England. Parties should therefore avoid taking part in proceedings brought by an opponent in another jurisdiction in breach of the arbitration agreement, and should instead seek relief without delay from the proper supervisory court of the arbitration. It is imperative to act quickly.

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