In Excalibur v Texas Keystone Inc & Others, the
claimant had simultaneously commenced an International Chamber of
Commerce (ICC) arbitration in New York and substantive Commercial
Court proceedings in London over very similar claims, against the
same defendants. Mrs Justice Gloster ruled that the Commercial
Court had jurisdiction to determine whether the arbitration
agreement between the claimant and those parties was valid. The
Commercial Court issued an injunction preventing the claimant from
pursuing the arbitration in New York against those parties, on the
basis that there was a strong arguable case that they never agreed
to the arbitration agreement.
Excalibur v Texas Keystone Inc & Others provides an
interesting example of a claimant commencing parallel court and
arbitration proceedings and casts serious doubts as to the merit of
such a procedural tactic in some circumstances. It is also a rare
example of the Commercial Court intervening in an arbitration that
was subject to the oversight by the New York, not English,
courts.
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In Excalibur v Texas Keystone Inc & Others, the
claimant had simultaneously commenced an International Chamber of
Commerce (ICC) arbitration in New York and substantive Commercial
Court proceedings in London over very similar claims, against the
same defendants. Mrs Justice Gloster ruled that the Commercial
Court had jurisdiction to determine whether the arbitration
agreement between the claimant and those parties was valid. The
Commercial Court issued an injunction preventing the claimant from
pursuing the arbitration in New York against those parties, on the
basis that there was a strong arguable case that they never agreed
to the arbitration agreement.
Excalibur v Texas Keystone Inc & Others provides an
interesting example of a claimant commencing parallel court and
arbitration proceedings and casts serious doubts as to the merit of
such a procedural tactic in some circumstances. It is also a rare
example of the Commercial Court intervening in an arbitration that
was subject to the oversight by the New York, not English,
courts.
The oil industry is a regular target for claims. These claims are
commonly made by commercial counterparties, governments, regulators
and, as in the present example, industry facilitators (or agents)
seeking payment of a "finders fee" (a fee payable upon
introduction to a new market, or exploration opportunity, for
provision of local contacts and know-how). Frequently, claims made
against oil companies give rise to decisions that add to the
development of the general law. The initial rebuttal of certain
claims made against companies associated with the oil exploration
company Gulf Keystone is one such example.
Oil industry observers will be well aware of Gulf Keystone. It has
recently struck significant quantities of commercially recoverable
oil reserves in the Shaikhan Block in oil-rich Kurdistan (the
semi-autonomous region in Northern Iraq), following a USD500
million investment programme. Gulf Keystone is registered in
Bermuda.
Gulf Keystone's chairman and CEO was also a director of other
(essentially family) companies, including one called Texas
Keystone. There were no other connections between Gulf Keystone and
Texas Keystone. Texas Keystone is a smaller company of around 50
staff and has interests in a number of licences in the US. It is
based in Pittsburg.
The claimant was a Delaware-based company called Excalibur Ventures
("Excalibur"), a small enterprise managed by a US citizen
and his family. The background to the deal was that Excalibur
signed an agreement to collaborate with Texas Keystone to bid for
licences in Kurdistan, where Excalibur claimed to have commercial
and political connections. If successful, Excalibur was to have a
30% participating interest in any eventually awarded licence.
Although there were provisions allowing it to become a party at a
later date, Gulf Keystone was not a party to the collaboration
agreement between Excalibur and Texas Keystone. The collaboration
agreement contained an arbitration agreement for ICC arbitration in
New York.
In December 2010, Excalibur commenced an action in the Commercial
Court in London, against Texas Keystone as well as against Gulf
Keystone and three other subsidiaries of its group (together
"the Gulf Defendants") alleging that it had been wrongly
prevented from contributing to the oil production sharing contract
that had been awarded to Gulf Keystone. Excalibur had further
applied to the English courts for a worldwide freezing injunction,
in a sum exceeding half a billion dollars, which was rejected by
Mrs Justice Gloster, who described the injunction as
"opportunistic". Excalibur's claim was being funded
by an unidentified third party.
On the same day Excalibur also filed a request for ICC arbitration
in New York against Texas Keystone and the Gulf Defendants seeking
similar, but not identical, relief. Excalibur argued that the Gulf
Defendants should be bound to the arbitration agreement as
– although they were not signatories to it - they were
nonetheless parties to it as the "alter ego" of Texas
Keystone when it entered the collaboration agreement. Following the
ICC Court's confirmation that the arbitration could proceed,
Excalibur applied for a stay of the English proceedings while the
Gulf Defendants asked the judge to issue an anti-arbitration
injunction claiming that they were not a party to the arbitration
agreement.
The questions for the judge were:
(i) whether the court had jurisdiction to grant an injunction
restraining arbitration under section 37 of the Senior Courts Act
1981 when the seat of the arbitration is in a foreign
jurisdiction;
(ii) depending on the outcome above, whether the court had
jurisdiction to determine the issue of whether the Gulf Defendants
can be compelled to arbitrate; and
(ii) whether an anti-arbitration injunction for the Gulf Defendants
or a stay of the Commercial Court action for Excalibur should be
granted.
Although it is rare for the English courts under the Arbitration
Act 1996 to interfere with any type of arbitration, especially one
commenced in a different jurisdiction, Mrs Justice Gloster decided
that the court had jurisdiction to grant an anti-arbitration
injunction and decided to grant it in this case as there were
exceptional circumstances justifying it.
Taking the first two questions together, she decided that the
Commercial Court was best placed to rule on the scope and extent of
the arbitration agreement. In doing so, the judge referred to last
year's Supreme Court decision in Dallah Real Estate and
Tourism Holding Company v Ministry of Religious Affairs of the
Government of Pakistan where, in an action against the
enforcement of a foreign award in England, the UK's highest
court decided that the English courts have jurisdiction, after the
arbitration took place in Paris, to decide on the issue of whether
the parties were bound by an arbitration agreement, despite the
doctrine of competence-competence, which permits an arbitral
tribunal to decide on its own jurisdiction. (See our earlier
Law-Now)
Considering that the Gulf Defendants had not been proper parties to
the collaboration agreement containing the ICC arbitration clause,
Mrs Justice Gloster accepted the argument that there was no
arbitral jurisdiction over them, and that, for reasons including
the chronology of the litigation, the conduct of the claimant,
"cost and case management concerns" and the lack of a
connection between the defendants and New York and the ICC, it was
justifiable to hold that "England is clearly the more
appropriate forum for the determination of Excalibur's
claims". Two key factors in this decision are worth
examining.
The first key factor was whether the arbitrators ought to decide
the scope of the arbitration agreement themselves, and be left
alone by the courts to do this.
Whilst the English courts will not restrain arbitral proceedings
with a seat in a foreign jurisdiction where the parties have
"unquestionably agreed" to arbitration, things are very
different where, as here, the claimant accepted that it may not
have had "good contractual claims against all of the
respondent[s]". Recent decisions, including the Supreme Court
in Dallah, confirm that the English courts can and will
intervene in such circumstances, notwithstanding the doctrine of
competence-competence and Article 6.2 of the ICC rules, which
provides that after a prima facie decision of the ICC Court it is
for the arbitrators to decide on the scope of their
jurisdiction.
The second key factor was whether the New York courts ought to
decide the scope of the arbitration agreement, not the English
courts.
Whilst accepting that questions of arbitrability or jurisdiction
may in appropriate circumstances have been better left to the New
York courts, Mrs Justice Gloster relied heavily on the fact that
Excalibur had accepted the jurisdiction of the English courts in
bringing its simultaneous Commercial Court claim (and its
application to the Commercial Court for a freezing injunction, a
remedy that would not have been granted had this application been
brought instead before the New York courts). To refuse the
anti-arbitration injunction would force the Gulf Defendants to
submit to the jurisdiction of the New York courts, with which they
had no connection, and to fight two sets of proceedings at the same
time, wasting time and costs. As set out in Dallah, a
party should not be compelled to go before a court or arbitral
tribunal against whose jurisdiction it vigorously protests.
It followed from the reasoning above that an anti-arbitration
injunction was granted to the Gulf Defendants, and Excalibur's
requested stay of the Commercial Court action was refused, largely
on the basis that if it was stayed, the arbitration would not
necessarily finally resolve all the issues currently before the
Commercial Court.
This case provides an interesting example of when the English
courts will determine that the circumstances are sufficiently
"exceptional" to justify their intervention in
arbitration with a foreign seat. Previous authority supported
intervention of the English courts in an English arbitration either
at the enforcement stage, or earlier, on the basis that
"sooner or later, the question of substantive jurisdiction is
likely to come before the court". In Dallah, the
Supreme Court explained the limits of the doctrine of
competence-competence in the context of enforcement proceedings.
The novelty in Excalibur was that Mrs Justice Gloster
decided that these limits were also applicable at the outset of the
arbitration proceedings without fearing that this will create a
conflict of jurisdictions between a national court and the arbitral
tribunal. Although seen by some as an unwarranted infringement into
the independence of the arbitral process, the decision by Mrs
Justice Gloster seems to prevent defendants from incurring the
expense of defending separate, but similar, claims in parallel
arbitration and court proceedings.
In terms of lessons to be learned, it is worth noting that in both
Dallah and Excalibur, the claimant had accepted a
transaction structure that made it hard to claim damages. This case
reinforces the approach of the English courts to privity of
contract in the arbitration context, in contrast, for example, to
the approach of the French court in Dallah. The judge also made
clear that she was not impressed with the procedural conduct of
Excalibur. If proceedings are "protective proceedings"
for the purposes of the Limitation Act, this should be made
apparent to the court and the other side at the outset.
Please click here for the case.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 21/07/2011.
