Bannai v Erez

An anti-suit injunction may restrain foreign court proceedings brought in breach of an arbitration agreement, even where the claimant does not intend to commence arbitration. Participation in foreign proceedings does not waive the arbitration agreement where the party has consistently sought a stay. Foreign insolvency proceedings, procedural convenience, expense, allegations of fraud and comity do not by themselves provide sufficient reason to withhold relief where the foreign court has refused to enforce the arbitration agreement. The injunction may also extend to proceedings against non-parties where necessary to prevent frustration or circumvention of the arbitration agreement.

The claimant sought continuation of anti-suit injunctions restraining the trustee in an Israeli bankruptcy from pursuing Israeli proceedings concerning disputes within an arbitration agreement in a contract governed by English law. The first injunction restrained proceedings against the claimant. The second extended protection to his son and ten companies said to be connected with the contractual dispute.

The trustee contended that the Israeli insolvency proceedings, the claimant’s participation in them, alleged non-disclosure, short notice, expense, and the bankrupt’s inability to travel justified discharge of the injunctions. The central issues were whether the injunctions should continue, whether the Israeli courts had sufficiently dealt with the arbitration agreement, and whether relief could extend to non-parties.

1. Injunction against the claimant. The injunction granted by Walker J was continued until further order. The arbitration clause contained a negative promise not to bring foreign proceedings. Following AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889, the claimant did not need to intend or contemplate arbitration in order to restrain proceedings brought otherwise than by arbitration.
2. The trustee, as trustee in bankruptcy, stood in the bankrupt’s shoes and was bound by the contractual arbitration agreement. The claimant had consistently relied on that agreement in Israel. His participation in the proceedings therefore did not amount to waiver.
3. The Israeli proceedings were continuing on their merits after the Israeli Supreme Court upheld dismissal of the application for a stay. The stay application had been dismissed, rather than adjourned. The claimant was contractually entitled to have disputes, including fraud allegations, resolved in arbitration without first exposing his merits case to determination by the insolvency court.
4. The existence of Israeli insolvency proceedings was not a sufficient good reason to withhold relief. Expense, the bankrupt’s imprisonment in Israel, procedural concentration, and comity did not outweigh the mandatory effect of the international arbitration agreement and the New York Convention. The court could grant relief despite the trustee’s status as an officer of the Israeli court.
5. The Israeli authorities did not establish a different result. Lavenberg v Bikur Holim-Hospital supported the general approach that insolvency concentration alone did not justify disregarding arbitration, particularly where no unique issue of insolvency law arose. The present case involved international arbitration, making the relevant discretion narrower.
6. The challenges based on non-disclosure and short notice failed. There had been sufficient disclosure of the Israeli proceedings, the alleged fraud was irrelevant to the injunction decision, and the later Israeli Supreme Court judgment would not have affected the original decision.
7. Injunction concerning the son and companies. The order made by Hamblen J was continued. Although the son and companies were not parties to the arbitration agreement, proceedings against them seeking substantially the same relief could frustrate and circumvent the arbitration. The injunction did not prevent interlocutory relief in support of arbitration or proceedings against non-parties after the arbitration concluded.
8. The claimant’s application to continue both injunctions was granted. The trustee’s application to discharge them was dismissed.