Nori Holding Ltd & Ors v Public Joint-Stock Company 'Bank Otkritie Financial Corporation' (Rev 1)

The claimants sought a final anti-suit injunction to restrain proceedings in Russia and Cyprus said to be in breach of arbitration clauses in pledges and pledge termination agreements governed by Cypriot law and providing for LCIA arbitration in London. The court confirmed the established principle that the Senior Courts have power under section 37 of the Senior Courts Act 1981 to grant anti-suit injunctions to enforce an arbitration agreement, and that an arbitration agreement is distinct from the main contract under section 7 of the Arbitration Act 1996.

On the facts the court held that the wide arbitration clauses in the original Pledge Agreements covered the disputes raised in the foreign proceedings and that the disputes were arbitrable under English law, rejecting the Singapore Court of Appeal’s presumption (in Larsen) that insolvency avoidance claims are not ordinarily arbitrable. The court also held that it was not precluded from granting relief on the ground that the arbitral tribunal had been constituted or could grant equivalent relief.

• Because of binding European law in West Tankers and subsequent CJEU authority, no English injunction could be granted to restrain proceedings brought in an EU member state (Cyprus) under the Brussels regime.
• Accordingly the court granted a mandatory injunction requiring the Bank to discontinue the Russian proceedings as against the claimants and restrained the Bank from commencing equivalent proceedings in non-EU/Lugano states; the claim for an injunction in relation to Cyprus was dismissed and the claim for an indemnity/damages in respect of the Cypriot proceedings was deferred.

Background and parties: The claimants are Cypriot and BVI companies connected to the O1 Group. The defendant is a Russian bank. In May–August 2017 secured short-term loans to the Group were replaced by bonds and the original pledges of shares were terminated by Pledge Termination Agreements governed by Cypriot law. The Bank, acting through a temporary administrator appointed by the Central Bank of Russia, commenced proceedings in the Moscow Arbitrazh Court seeking to set aside the August transactions (including the Pledge Termination Agreements) on grounds including transactions at an undervalue under the Russian Bankruptcy Law and abuse of rights under the Russian Civil Code. The claimants commenced LCIA arbitrations and applications in Cyprus and applied in England for a final anti-suit injunction restraining the Russian and Cypriot proceedings against them as in breach of the arbitration clauses.

Nature of the application: A final anti-suit injunction under the court’s equitable jurisdiction (Senior Courts Act s37) to restrain foreign court proceedings allegedly brought in breach of arbitration agreements; alternatively a declaration and indemnity/damages in respect of Cypriot proceedings.

Issues framed: (i) whether the court should decline to act because the arbitral tribunal had been constituted and could grant equivalent relief; (ii) whether the Russian proceedings (including claims under Article 189.40 of the Russian Bankruptcy Law) fall outside the arbitration clauses or are non-arbitrable; (iii) whether West Tankers prevents an injunction in relation to Cyprus; (iv) whether there are strong reasons of discretion (including fragmentation of proceedings and forum of convenience) to refuse relief; and (v) whether delay precluded relief.

Court’s reasoning and conclusions:

• The court reaffirmed that English courts retain power to grant anti-suit injunctions to enforce arbitration agreements and that arbitration agreements are distinct from the main contract (Arbitration Act 1996 s7). The availability of relief from arbitrators does not preclude the court from granting a final injunction where appropriate; section 9 of the Arbitration Act 1996 is the mechanism for a defendant to seek a stay but that route was not taken here and the Bank denied breach of the clauses.
• The court rejected the Singapore approach in Larsen that avoidance claims in insolvency are ordinarily outside arbitration and concluded that, under English law, the wide arbitration clause covers disputes about the commercial validity of the August transactions. The essential factual dispute (fraud/unequal consideration) is one which arbitrators can determine; labels of Russian insolvency law do not make the dispute non-arbitrable.
• West Tankers remains binding EU law: the Recast Brussels Regulation and Gazprom did not displace the West Tankers principle that an anti-suit injunction by a court of one member state which prevents a court of another member state from ruling on its own jurisdiction is incompatible with the Regulation. Accordingly no injunction could be granted in respect of the Cypriot proceedings; relief in relation to Cyprus was therefore dismissed (with indemnity/damages/declaration deferred to arbitration or Cyprus court as appropriate).
• On discretionary grounds the Bank failed to establish strong reasons to refuse an injunction in respect of the Russian proceedings: fragmentation of proceedings did not outweigh the parties’ agreement to arbitrate, and delay by the claimants was not such as to disentitle them to relief.

Outcome: the Bank was ordered to discontinue the Russian proceedings as against the claimants; restrained from bringing equivalent proceedings in non-EU/Lugano states; the injunction claim in relation to Cyprus was dismissed and the claim for an indemnity/damages in relation to Cyprus was deferred.

The application was allowed in part. The court ordered that the Bank must discontinue the Russian proceedings as against the claimants and restrained the Bank from commencing equivalent proceedings in states outside the European Union and the Lugano Convention. The application for an injunction to restrain the Cypriot proceedings was dismissed because West Tankers and CJEU authority prevent an English court granting an anti-suit injunction against proceedings in another EU member state; the claimants’ alternative claim for indemnity/damages in respect of the Cypriot proceedings was deferred. The judge’s reasoning rested on: (i) the enforceability of arbitration agreements under section 37 of the Senior Courts Act and section 7 of the Arbitration Act 1996; (ii) the arbitrability of the dispute under English law; and (iii) EU law constraints in relation to Cyprus under West Tankers and Gazprom.