Remedies for Enforcing Forum Selection Agreements

Transcription

1 Remedies for Enforcing Forum Selection Agreements Daniel Tan International Dispute Resolution Practice Latham & Watkins LLP Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership Copyright 2006 Latham & Watkins. All Rights Reserved.

2 Enforcing forum selection agreements Party A agrees with party B to arbitrate all disputes arising out of an agreement in New York. A dispute arises, but party B refuses to arbitrate. Instead party B also commences court proceedings in London. What can A to do make sure that the dispute is in fact arbitrated and not resolved in the English courts? Consider also what happens if the initial agreement was to resolve all disputes in the courts of New York.

3 Remedial devices for enforcing forum selection agreements Remedies to enforce forum selection Two types of forum selection agreements: (1) choice of court agreements and (2) arbitration agreements NOT whether we should enforce choice-of-court or arbitration agreement. Proposal: interlocking framework of remedies

4 Forum Selection Agreements Effect on outcome Commercial certainty and predictability Curb forum shopping Common law courts endeavor to uphold For arbitration agreements, enforcement underpinned by: (1) Federal policy in favor of arbitration (2) Federal Arbitration Act

5 Outline 1. Antisuit Injunctions 2. Damages 3. Staying local proceedings 4. Specific performance 5. Refusing to recognize judgments obtained in breach of forum selection agreements

6 Antisuit Injunctions Fast developing area of law Based on power of court to enjoin the breach of a negative covenant Controversial: Impact on comity Reasonably clear that English and US courts will grant to enforce forum selection agreements Where not used to enforce forum selection agreement, circumstances where they may be granted unclear

7 English cases using antisuit injunctions to enforce choice of court agreements Sohio v. Gatoil [1989] 1 Lloyd s Rep. 588, 592 (Eng. C.A.): granted on the basis that the act of continuing foreign proceedings in breach of contract may well in itself be vexatious and oppressive. Continental Bank v. Aekos [1994] 1 Lloyd s Rep. 505, 512 (Eng. C.A.): decisive that the proceedings amounted to a breach of contract, and [were] paradigm case for the grant of an injunction.

8 Donohoe v. Armco, Inc. [2002] 1 Lloyd s Rep. 425, 432 (H.L.): In the absence of strong reasons, the English courts will ordinarily restrain foreign proceedings commenced in breach of forum selection (jurisdiction) agreements: If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the noncontractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum.

9 Emphasizing that cases which involve forum selection agreements stand on a different footing from those that do not: The position of a party who has an exclusive English jurisdiction clause is very different from one who does not. The former has a contractual right to have the contract enforced. The latter has no such right. The former s right specifically to enforce his contract can only be displaced by strong reasons being shown by the opposite party why an injunction should not be granted. The latter has to show that justice requires that he should be granted an injunction. Note: Impact of European Conventions (Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as amended by the Accession Conventions of 1978, 1982 and 1989)), and Case C-116/02, Erich Gasser GmbH v. MISAT Srl (E.C.R. 2003); Case C- 159/02, Turner v. Grovit, (E.C.R. 2004), and others.

10 English cases using antisuit injunctions to enforce arbitration agreements Aggeliki Charis Compania Maritima S.A. v. Pagnan S.p.A. (The Angelic Grace), [1995] 1 Lloyd s Rep. 87, 96 (Eng. C.A.) (Lord Justice Millet): But in my judgment there is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.... The justification for the grant of the injunction in either case is that without it the plaintiff will be deprived of its contractual rights in a situation in which damages are manifestly an inadequate remedy. Welex AG v. Rosa Maritime Limited [2003] 2 Lloyd s Rep. 509, 518 (Eng. C.A.) (Lord Justice Tuckey) [T]he starting point is, as the Judge said, that the party suing in the non-contractual forum must show strong reasons for [breaching arbitration clauses] or he faces the prospect of an injunction being granted against him.

11 US cases using antisuit injunctions to enforce choice-of-court agreements E&J Gallo Winery v. Andina Licores, No , 446 F.3d 984, 995 (9th Cir. 2006): Andina has involved Gallo in messy, protracted, and potentially fraudulent litigation in Ecuador in direct contravention of a valid and enforceable forum selection clause. This is a paradigmatic case for a preliminary anti-suit injunction. The district court erroneously applied the law and, therefore, abused its discretion in denying the requested injunction. We reverse and remand to the district court with instructions to enter a preliminary injunction barring Andina from proceeding with litigation in Ecuador.

12 US cases considering antisuit injunctions to enforce arbitration agreements Almost certainly based on federal policy in favor of arbitration. Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs. 369 F.3d 645 (2d Cir. 2004) LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194 (2d Cir. 2004) SG Avipro Fin. Ltd. v. Cameroon Airlines, 05 Civ. 655, 2005 U.S. Dist. LEXIS (S.D.N.Y. Jun. 8, 2005) Empresa Generadora de Electricidad ITABO, S.A. v. Corporacion Dominicana de Empresas Electricas Estatales, 05 Civ. 5004, 2005 U.S. Dist. LEXIS (S.D.N.Y. Jul. 18, 2005) Ibeto Petrochemical Indus. v. M/T Beffen, 412 F. Supp. 2d 285 (S.D.N.Y. 2005) Affymax v. Johnson v. Johnson, 420 F. Supp. 2d 876 (N.D. Ill. 2006)

13 Paramedics, 369 F.3d at : The federal policy favoring the liberal enforcement of arbitration clauses (as discussed above) applies with particular force in international disputes... We need not decide categorically whether an attempt to sidestep arbitration is alone sufficient to support a foreign antisuit injunction, because "there is less justification for permitting a second action," as here, "after a prior court has reached a judgment on the same issues." An antisuit injunction may be needed to protect the court's jurisdiction once a judgment has been rendered... Principles of comity weigh heavily in the decision to impose a foreign anti-suit injunction... But where one court has already reached a judgment--on the same issues, involving the same parties--considerations of comity have diminished force.

14 LAIF X, 390 F3d at : A salient consideration in this case is that, given the federal policy favoring the liberal enforcement of arbitration clauses," an anti-suit injunction may be proper where a party initiates foreign proceedings in "an attempt to sidestep arbitration. On the other hand, the legal relationship between a Belgian investor and a Mexican enterprise in no way implicates the strong public policies of the enjoining forum, Paramedics Electromedicina, 369 F.3d at 652, which is the Southern District of New York.

15 Avipro, 2005 U.S. Dist. LEXIS at *8: Finally, the Court finds that the enjoining forum's strong public policy in favor of arbitration, particularly in international disputes, see Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 92 (2d Cir. 1999), would be threatened if CA were permitted to continue to pursue the Cameroon Action, particularly in light of the Court's decision herein granting SG Avipro's motion to compel arbitration. Accordingly, for the foregoing reasons, SG Avipro's motion for an anti-suit injunction is granted.

16 Empresa, 2005 U.S. Dist. LEXIS at *24-27: ITABO has not met its heavy burden; of establishing irreparable harm... Because Plaintiff has "failed to establish that [it] would suffer irreparable harm in the absence of an injunction, there is no need to reach the second portion [whether ITABO is likely to succeed on the merits or there are serious questions going to the merits of the case and the balance of hardship tips in ITABO's favor] of the preliminary injunction analysis.

17 Beffen, 412 F. Supp. 2d at : First, plaintiff s intention to pursue litigation in this foreign forum as an alternative to arbitration is a salient consideration in this case... given the federal policy favoring the liberal enforcement of arbitration clauses. Permitting the Nigerian litigation to continue may frustrate the general federal policy of promoting arbitration.

18 Affymax, 420 F. Supp. 2d at 884: Synthesizing these cases, the Court concludes that the case for an anti-suit injunction is most compelling when a party seeks to both enforce a judgment and avoid duplicate litigation. An injunction in this case would achieve both goals. The Court has already ruled that the German dispute is subject to arbitration. As in Paramedics, the Court has a significant interest in enforcing that ruling, and an injunction preventing Affymax from going forward with the German lawsuit would allow the Court to do so. Also, if the Court did not issue an injunction, the German lawsuit and the arbitration would proceed simultaneously, resulting in the same unfair burden condemned in Allendale and Paramedics.

19 Damages for breach of forum selection agreements Rather less developed Common law damages vindicate a straightforward breach of contract Power of the court to award equitable damages - damages in lieu or substitution of an injunction - buttresses the availability of damages Quantification problems remain

20 U.S. and English cases supporting availability of damages Donohue v. Armco Inc. [2002] 1 Lloyd s Rep. 425 (H.L. 2001) Union Discount v. Zoller [2002] 1 W.L.R. 1517, (Eng. C.A. 2001) A/S D/S Svenborg D/S af 1912 A/S v. Akar [2003] E.W.H.C. 797 (Q.B. 2004) (in addition an indemnity against future costs) Allendale Mutual Insurance Co. v. Excess Insurance Co. Ltd., 992 F. Supp. 278 (S.D.N.Y. 1998) Laboratory Corporation of America Inc. v. Upstate Testing Laboratory, Inc., 967 F. Supp. 295 (N.D. Ill. 1997) Taylor v. Bevinco Bar Systems, No. CV , 1997 U.S. Dist. LEXIS (D. Ariz. Jan. 21, 1997) Indosuez Intern. Finance, B.V. v. National Reserve Bank., 758 N.Y.S.2d 308 (N.Y. App. Div. 2003) Ball v. Versar, Inc., No. 1:01 CV 0531 DFH TAB, 2006 WL (S.D. Ind. Sept. 5, 2006)

21 Power of the court to stay proceedings in favor of contractual forum Statutory power to stay: 9 USC 3. Stay of proceedings where issue therein referable to arbitration If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. Inherent power to stay proceedings: Nederlandse Erts-Tankersmaatschappij, N. V. v. Isbrandtsen Co. 339 F.2d 440 (2d Cir. 1964) The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance

22 Exercise of inherent power to stay Power to stay Chapter 2 cases despite lack of statutory authority: Chloe Z Fishing Co. v. Odyssey Re (London) Ltd., 109 F. Supp. 2d 1236, 1262 (S.D. Cal. 2000) (internal citations omitted): [The] Convention and its implementing legislation does not expressly grant the Court authority to stay an action pending arbitration. However, 9 U.S.C. 208, the final section of the statute implementing the Convention, states that Chapter 1 of the Act applies to Chapter 2 cases when not in conflict with Chapter 2. Therefore, Chapter 1 of the Arbitration Act, 9 U.S.C. 3, which governs arbitration agreements relating primarily to interstate commerce, and which makes a stay available, may be construed to allow a stay in cases falling under the Convention insofar as it is not inconsistent with the Convention or Chapter 2, and based on the facts of the case. Power to stay arbitral proceedings despite lack of statutory authority: Tai Ping Ins. Co. v. M/V Warschau, 731 F.2d 1141, 1144 (5th Cir. 1984): There is no provision in the Act for a stay of arbitration. Nonetheless, the case law clearly establishes that, in the appropriate circumstances, such an order is within the power of the district court.

23 Power to order specific performance and compel arbitration 9 USC 4. Failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration; notice and service thereof; hearing and determination. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. 9 USC 206. Order to compel arbitration; appointment of arbitrators A court having jurisdiction under this chapter [9 USCS 201 et seq.] may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States. Such court may also appoint arbitrators in accordance with the provisions of the agreement.

24 Refusal to recognize judgments obtained in breach of forum selection agreements in common law cases The Angelic Grace [1995] 1 Lloyd s Rep. 87, 94 (Eng. C.A.): Open to the English court to refuse recognition of any judgment resulting from proceedings commenced in breach of an arbitration agreement: If the charterers are not restrained from pursuing the Italian proceedings and the Italian Court exercised jurisdiction, then the question would arise, referred to by the Judge, whether a judgment by the Italian Court on the merits of the charterers claim would be recognized or enforced in England. Philip Alexander Securities & Futures Ltd v Bamberger & Ors CA (Civil Division) Transcript, 12 July 1996: English CA approved the following statement of the judge at first instance: It would seem to me prima facie that if someone proceeds in breach of, and with notice of, an injunction granted by the English Court to obtain judgments abroad, those judgments should not, as a matter of public policy, be recognised in the United Kingdom.

25 Singapore High Court in WSG Nimbus Pte. Ltd. v. Board of Control for Cricket in Sri Lanka [2002] 3 Sing.L.R. 603 (Sing. H.C.): To recognize a judgment obtained in a face of an antisuit injunction would be manifestly against public policy : In my view I cannot ignore the actions of the Defendants. They were aware of the anti-suit injunction and chose to ignore it. By virtue of the MRA they had agreed to submit disputes to arbitration in Singapore upon election by any party and the Plaintiffs have so elected. In the circumstances it would be manifestly against public policy to give recognition to the foreign judgment at the behest of the Defendants who have procured it in breach of an order emanating from this Court. Recognition would be (1) against public policy allowing fruits of prohibited acts, and (2) unseemly.

26 Interlocking framework of remedies Challenge 1: Work out the role, scope and uses of each remedy. Antisuit injunctions - restrain impending breaches; prohibitory injunction to restrain the breach of the negative covenant not to commence proceedings other than in the contractual forum. Damages - flexible remedy to vindicate the breach of the contractual obligation and right to forum in forum selection agreements Stays of local proceedings - unintrusive remedy to support foreign court or arbitral proceedings Compelling specific performance - mandatory injunction to order that a party perform his promise to litigate in the chosen forum. Refusal to recognize judgments obtained in breach of forum selection agreements - unintrusive remedy and a backend method of enforcing proceedings; useful only to immunize assets within jurisdiction of enforcing court.

27 Interlocking framework of remedies Challenge 2: To develop remedies in tandem in a manner consistent with each other: Antisuit (prohibitory) injunctions and compelling specific performance (mandatory injunctions). Injunctive relief and damages. A principled overarching remedial framework of responses to breaches and impending breaches of forum selection agreements is the only way to achieve these aims.

28 Bibliography Enforcing International Arbitration Agreements in Federal Courts: Rethinking the Court's Remedial Powers (forthcoming as lead article in 47 Virginia Journal of International Law, spring 2007). Anti-Suit Injunctions and the Vexing Problem of Comity, 45 Virginia Journal of International Law (2005). Damages for Breach of Forum Selection Clauses, Principled Remedies and Control of International Civil Litigation, 40 Texas International Law Journal (2005). Papers available for download at: =412570