English Commercial Court orders stay of Lebanon-seated arbitration in ‘exceptional’ case

In the most recent decision in the Sabbagh family feud, Sabbagh v Khoury & Ors [2018] EWHC 1330 (Comm), the English Commercial Court ordered the stay of parallel Lebanon-seated arbitration proceedings. This was despite the tribunal in that case having found that it had jurisdiction to hear it. In granting the interim injunction to restrain the pursuit of the arbitration proceedings, Mr Justice Knowles was quick to acknowledge the significance of a court that is not the supervisory court granting an injunction to prevent parties prosecuting a foreign arbitration.

 

Background and procedural history 

Ms Sana Sabbagh and her two brothers, Samir and Suheil, are the children and heirs to the late Mr Hassib Sabbagh who, together with his cousin Said Toufic Khoury, founded the largest group of engineering and construction companies in the Middle East, the Consolidated Contractors Company group (the “CCC group“).

Sana commenced litigation proceedings in the English Commercial Court in July 2013 against various defendants, including her brothers, three of her Khoury cousins, and various CCC group companies. The proceedings were started in the English courts, as the first defendant, Mr Wael Said Khoury, was domiciled in England and Wales, thereby bringing the other defendants within the jurisdiction of the courts as “necessary and proper parties” to the litigation against Wael (under Article 6(1) of the Brussels Regulation).

Sana alleged that the Defendants had conspired to misappropriate assets belonging to her father (referred to as the ‘asset misappropriation claim’) and, since her father’s death in 2010, to deprive her of her entitlement to shares in the Consolidated Contractors Group (CCG), the ultimate parent company of the CCC group (referred to as the ‘share deprivation claim’).

After Sana had commenced the English litigation, her brothers Samir and Suheil, together with CCG and Hassib Holding SAL, the Lebanese company owned and controlled by Samir and Suheil (the “Arbitration Claimants“), commenced arbitration proceedings seated in Lebanon under the dispute resolution clause in the Articles of Association of CCG (the “Lebanese Arbitration“). The Arbitration Claimants were seeking, amongst other things, a determination as to the ownership of the shares in CCG and sums owed from Hassib’s shareholder account. These are issues which the Arbitration Claimants themselves acknowledged in their Memorial on Jurisdiction “correspond[ed] in substance” to the share deprivation and asset misappropriation claim. The tribunal appointed ruled that it had jurisdiction to hear the case. Sana refused to participate in the Lebanese Arbitration, on the grounds that she was not a party to any agreement to arbitrate under the Articles of Association of CCG.

In July 2017, the Court of Appeal refused the Arbitration Claimants’ request to stay the litigation proceedings in favour of the Lebanese Arbitration. It refused the stay on the grounds that Sana was not bound by the dispute resolution clause in the Articles of Association of CCG in respect of either the asset misappropriation or the share deprivation claim. The Arbitration Claimants applied for permission to appeal to the Supreme Court, which was denied on 12 March 2018.

In the interim, while waiting for the Supreme Court to hand down its decision on the request to appeal, Sana applied to the Commercial Court for an interim injunction to require the Arbitration Claimants not to prosecute the Lebanese Arbitration, to take steps to stay it and not to seek the recognition or enforcement of any award made in that arbitration. All of the relevant parties accepted that the court had the power to grant an injunction in these terms.

Judgment

Mr Justice Knowles held that the English courts have the power to grant such an injunction where it is just and convenient to do so (section 37(1) of the Senior Courts Act 1981). Referring to Claxton Engineering Services Ltd v TXM Olaj-Es Gakutato KTF [2011] EWHC 345 (Comm) and Excalibur Ventures LLC v Texas Keystone Inc & Ors [2011] EWHC 1624 (Comm), Mr Justice Knowles stressed however that where the injunction sought would restrain participation in an arbitration with a foreign seat, and the foreign seat offered appropriate supervisory jurisdiction, there was a need for “exceptional circumstances” and “caution” in the exercise of the power. In particular, granting the injunction may be appropriate if continued pursuit of an arbitration would be “vexatious and oppressive”, which might be the case if the court found that the parties had not agreed to arbitration.

Mr Justice Knowles granted the injunction, finding that it would be vexatious and oppressive for the Arbitration Claimants, following the recent decision of the Court of Appeal, to press on with the Lebanese Arbitration. In reaching his decision, Mr Justice Knowles addressed, amongst others, the following points raised by the parties:

  • Agreement to arbitrate: Counsel for Sana argued that the Arbitration Claimants were estopped from re-litigating the question of whether she was bound by the arbitration agreement in the Articles of Association in light of the Court of Appeal’s finding that she was not. Relying on the reasoning of the prior Court of Appeal judgment, Mr Justice Knowles agreed and found that the parties had not agreed to arbitration in respect of the asset misappropriation and share deprivation claims.
  • Role of the Lebanese Courts: The Arbitration Claimants argued that the fact the Court of Appeal had addressed relevant points of Lebanese law (for example, in determining whether Sana was bound by the dispute resolution provisions in the Articles of Association) did not justify the English courts precluding the possibility of the Lebanese courts looking at the matter in its supervisory role as the court of the seat of the Lebanese Arbitration by granting the injunction. In response, Mr Justice Knowles stated that the better way to look at the matter was to treat the conclusions reached on the points of Lebanese law by the Court of Appeal as decisions that the Lebanese courts would have reached if they looked into the matter. Mr Justice Knowles held that “[w]hat matters is not which court decided [the issues] but that they are correct conclusions of Lebanese law“.
  • Delay: Mr Justice Knowles dismissed suggestions that Sana had delayed seeking an injunction. He noted that from 28 July 2017, when the Court of Appeal handed down its decision, all parties should have accepted that the Lebanese Arbitration should not continue. In contrast, pursuing such proceedings would only produce further uncertainty and chart a course to wasted resources and delays.
  • Costs in the Lebanese Arbitration: Mr Justice Knowles acknowledged that the Arbitration Claimants had incurred costs in the Lebanese Arbitration and that the tribunal was close to issuing an award on the merits but took the view that, following the Court of Appeal’s decision, any further costs spent in the arbitration were simply delaying the consequences of that decision until the enforcement stage.

Mr Justice Knowles acknowledged the significance of the English courts granting an injunction in respect of a Lebanon-seated arbitration rather than the Lebanese supervisory courts. However, he denied that this was a case involving any undue assertion of jurisdiction by the English courts. In circumstances where the parties had caused the question of whether the arbitration clause bound Sana to be put to the courts of England and Wales, argued that question before those courts, and received an answer, he found that it was appropriate for all parties to be held to that answer and its consequences.

Comment

At first glance, the decision by the English courts, rather than the Lebanese courts, to grant an injunction restraining the pursuit of an arbitration seated in Lebanon, based on findings of Lebanese law, in respect of a family feud which appears to have little connection to England other than the domicile of one of many defendants, may seem odd. Indeed, it is undoubtedly an unusual situation, hence why Mr Justice Knowles was at such pains to stress the ‘exceptional’ nature of the case and to make it clear that such an injunction would not be granted lightly.

The decision to grant the injunction in Sabbagh v Khoury & Ors however highlights the risks of commencing foreign-seated arbitrations without first seeking a stay of proceedings where the English courts have already been seized in respect of the issues in dispute. The existence of such foreign-seated proceedings will not prevent the English courts from granting an injunction to prevent the pursuit of the arbitration where it considers its pursuit vexatious and oppressive.

 

For further information, please contact Nicholas Peacock, Partner, Maguelonne de Brugiere, Senior Associate, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
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+44 20 7466 2803
Maguelonne de Brugiere
Maguelonne de Brugiere
Senior Associate
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+44 20 7466 7488

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