Kazakhstan v Istil Group Inc

The court may exceptionally restrain a party from continuing an international arbitration where the supervisory court has determined that the tribunal lacks jurisdiction and further proceedings would be oppressive, vexatious and unconscionable. The court should not leave arbitrators to choose between their own earlier ruling and the supervisory court’s decision on the same jurisdictional issue. The Arbitration Act 1996 requires restraint, but does not prevent intervention where an injunction is just and convenient under the court’s residual jurisdiction and is the optimum procedure in the unusual circumstances.

Istil sought to continue LCIA arbitration proceedings against the Republic of Kazakhstan after a tribunal had made an award on jurisdiction and a later final award. The High Court, on a full rehearing under section 67 of the Arbitration Act 1996, set aside the final award because the tribunal lacked substantive jurisdiction. The Court of Appeal dismissed Istil’s application for permission to appeal, and the House of Lords refused permission.

Istil then invited the tribunal to reconvene and determine liability and quantum, contending that the earlier jurisdiction award remained final and binding. Kazakhstan applied for an injunction restraining further pursuit of the arbitration. The central issue was whether the court should intervene or leave the tribunal to determine the effect of the earlier award.

1. Application granted. Istil was restrained from further pursuing its claims against Kazakhstan in LCIA Arbitration No. 1305.
2. The court accepted, for the purposes of the application, that section 37(1) of the Supreme Court Act 1981 conferred a residual jurisdiction to grant an injunction where it was just and convenient to do so. That jurisdiction had to be exercised most sparingly and with due regard to section 1(c) of the Arbitration Act 1996, under which the court should not intervene except as provided by that Part.
3. The status of the earlier jurisdiction award had been central to the proceedings before Steel J. Istil had argued that Kazakhstan had lost its right to challenge jurisdiction under section 73(2) of the Arbitration Act 1996. Steel J had rejected that argument because the tribunal had treated the earlier award as open to review, neither party had challenged that approach under section 68, and the time for doing so had expired.
4. The full rehearing ordered by Morison J placed the jurisdiction issue at large. Steel J’s conclusion that the tribunal lacked substantive jurisdiction necessarily meant that the earlier jurisdiction award did not revive when the final award was set aside. Otherwise the full rehearing would have been rendered pointless.
5. Istil could not rely on an alleged later ad hoc agreement to arbitrate the merits. That argument was inconsistent with the ratio of Steel J’s judgment, or had been available but not pursued earlier. The French proceedings also gave rise to an issue estoppel: Kazakhstan was not a party to the arbitration agreements, and Istil was estopped from asserting the contrary.
6. Per Longmore LJ in Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 686, the arbitrators would ordinarily be the first tribunal to consider their own jurisdiction. That principle had been respected, but the supervisory court had since conducted a full rehearing on the same issue.
7. It would be inappropriate to leave the arbitrators to prefer their own earlier decision over the supervisory court’s determination. Further pursuit of the arbitration would be oppressive, vexatious and unconscionable. The injunction was therefore both just and convenient and, in the circumstances, the optimum procedure.

• High Court, Commercial Court: Steel J set aside the final award for lack of substantive jurisdiction.
• Court of Appeal: Istil’s application for permission to appeal was dismissed on 25 April 2007. The court held that it had no jurisdiction to entertain the application.
• House of Lords: Permission to appeal was refused on 26 July 2007.
• High Court, Commercial Court: The present court granted an injunction restraining further pursuit of the arbitration.