English Commercial High Court (QB) issued an anti-arbitration injunction against Lebanon seated arbitration in ‘exceptional circumstances’

Sally Roberts court case

 

In the case of Sana Hassib Sabbagh v. Wael Said Khoury and Ors. [2018] EWHC 1330 (Comm), the English Commercial High Court has issued an anti-arbitration injunction against Lebanon seated arbitration on the particular facts of the case. The case analysis follows:

Factual Matrix

Dispute arose between Claimant (Sana) and Defendants (Brothers of Sana and Others). Sana Alleged that her brothers conspired misappropriation of parental assets belonging to their father and to deprive her of her entitlement to the shares in CCG which is the Lebanese holding and ultimate parent company in the CCC group, the largest group of engineering and construction companies in the Middle East.

Wael was domiciled in England and Wales. The other Defendants are brought within the jurisdiction of the courts of England & Wales as necessary and proper parties to the litigation against Wael and under Article 6(1) of the Brussels Regulation.

The Brothers commenced the Lebanese Arbitration against Sana. Sana contended that there is no agreement to arbitrate, and has not taken part in the arbitration. The tribunal in the Lebanese Arbitration has ruled that it has jurisdiction.

Thereafter the Brothers tried to obtain a mandatory stay of the litigation in England and Wales by reason of the Lebanese Arbitration which was dismissed by the Court of Appeal of England & Wales. The Brothers and Others made an application to the Supreme Court but the Court has refused permission to appeal the decision of the Court of Appeal.

Sane applied in the Commercial Court of England and Wales seeking an anti-arbitration injunction to obtain an order to stay the Lebanese Arbitration and not to seek recognition or enforcement of any award made in that arbitration.

Two Material Claims

 

The Asset Misappropriation Claim

Sana alleged that following Hassib’s (their father) stroke, accumulated dividends and other income were used knowingly by the Brothers and others to make improper or unauthorised investments in their own names and that, when sold, the proceeds of sale from these investments were not accounted for or applied for the benefit of Hassib. To the extent that they would otherwise have formed part of Hassib’s estate on death, [Sana] seeks damages for conspiracy based on the value of the misappropriated assets

The Share Deprivation Claim

Under this claim Sana alleges that following her father’s death, her Brothers and others had conspired to deprive her of her entitlement under Lebanese law to a third of their father’s shareholding by unlawfully procuring the transfer of the shares to HH, a Lebanese company owned and controlled by two of her brothers.

Parties Contentions

The Brothers contended that the presence of an allegation of dishonest conspiracy in the litigation in England and Wales distinguishes the two claims from the claims also pursued in the Lebanese Arbitration.

Further it was contended that the fact that the Court of Appeal of England & Wales has addressed the points of Lebanese law that it has does not justify the English Court precluding, by the discretionary injunction now sought, the possibility of the Lebanese Court looking at the matter in its supervisory role as the court of the seat of the Lebanese Arbitration.

Sana Contended that she is not suing on behalf of Hassib as a shareholder.

Arbitration Clause

The Clause was in Article 45 of the Article of Association and the same is reproduced below:

“Article 45

Disputes

Every dispute arising during the course of the existence of the company or during its liquidation, whether between shareholders themselves or between shareholders and the company itself, shall be solved through mediation or else through arbitration according to the regulation put in place by the First Board of Directors …, provided that the general shareholders assembly has approved it.

Disputes are divided into two kinds:

  1. A) Individual disputes in which the aggrieved party has the right to file a claim according to the directives of Article 166 of the Trade Act against the company, and which the shareholders are not permitted to halt through the balloting process via the general shareholders assembly for the purpose of releasing from responsibility the members of the Board of Directors
  2. B) Disputes involving the general interests of the company; these cannot be directed against the Board of Directors or against one of its members except in the name of and on behalf of a group of shareholders, and in accordance with a decision from the regular general shareholders assembly.”

Analysis

The Court found that the claims pursued in, or the issues truly in dispute in, the Lebanese Arbitration, commenced by the Brothers shortly after Sana commenced the present litigation in England and Wales, are within the two claims described above.

Citing various authorities, the Court observed that where, as here, the injunction sought would restrain participation in an arbitration with a foreign seat, and the foreign seat offered appropriate supervisory jurisdiction, the authorities have referred to the need for exceptional circumstances for (at least where arbitration was agreed) and caution in the exercise of the power to grant an injunction.

Specifically, the exercise of the power may be appropriate if continued pursuit of an arbitration would be vexatious and oppressive. That may be the case where the court concludes that the parties did not agree to arbitration.

The Court further commented that in the present litigation Sana is not suing as a shareholder and therefore, she cannot be bound by Article 45 on the basis that she is suing as a shareholder. Thus the parties did not agree to arbitration in respect of the two claims. The Court accepted the reasoning given by Court of Appeal in the earlier litigation that the proper characterisation of the asset misappropriation claim, evaluated as a matter of substance and not form, is a claim based on the general Lebanese law concerning an alleged conspiracy to deprive Sana of what is said to have been Hassib’s property. The claim is not concerned with breaches of the articles of association, and is essentially no different from a (hypothetical) claim that the defendants conspired to take other property from Hassib which Sana would otherwise have inherited. This is not merely due to the fact that the claim is framed in non-contractual terms, nor is it a matter of clever pleading. The claim is in substance different from a claim based on the articles of association.

The Court of Appeal had also made an observation that its view, even if the claimant had been bound by the arbitration clause, the asset misappropriation claim would not have been within its scope. This is because the scope of Article 45 is limited by Article 762 of the Lebanese Code of Commerce, which prescribes that arbitration clauses are only valid insofar as they relate the interpretation, enforcement or performance of the contract in question. Moreover, Article 45 is expressly confined to the two kinds of disputes identified as ‘A’ and ‘B’, and the asset misappropriation claim does not fall into either category.

On the issue of the possibility of the Lebanese Court looking at the matter in its supervisory role as the court of the seat of the Lebanese Arbitration, the Court held that the correct way to look at the matter is to treat the conclusions of the Court of Appeal as conclusions that a Lebanese Court would have reached had it looked at the matter. What matters is not which court decided them but that they are correct conclusions of Lebanese law. And those conclusions are to the effect that, in respect of the two claims, there should be no arbitration including so as to engage the supervisory jurisdiction of a court.

Conclusion

The Court concluded that there is no relevant agreement to arbitrate. The injunction sought to prevent conduct by the parties based on the asserted validity of an arbitration when there is no valid arbitration. The parties have not “unquestionably agreed” to arbitration under “an agreement providing for arbitration with its seat in a foreign jurisdiction” so as the engage the question of infringement of principles of the law of international arbitration agreed under the New York Convention (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958) and recognised in the English Arbitration Act 1996.

The Court also acknowledged that in the present case the arbitrators in the foreign arbitration have themselves reached a conclusion on the question of whether there is an agreement to arbitrate so as to give them jurisdiction. But such a conclusion would always be subject to any conclusion reached on subsequent judicial consideration. In the present case there has been that subsequent judicial consideration. It has not been by a supervisory court but it has been by a court properly fulfilling its role in litigation properly before it, and in addressing a question put to it and argued before it by the parties who contended that there was an agreement to arbitrate.

The Court granted the Anti Arbitration Injunction holding that this is an exceptional case in many respects, and on a close appreciation of its circumstances, it hoped that it will be understood that it is not one that involves any undue assertion of the jurisdiction of the courts of England & Wales.

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