In the case of Perkins Engines Company Limited v Mohammed Samih Hussein Ghaddar & Ghaddar Machinery Co. S.A.L  EWHC 1500 (Comm) the English Court was asked to issue an anti-suit injunction against court proceedings brought in Lebanon. The relevant dispute resolution clause between the parties provided for English court jurisdiction to the extent that “reciprocal enforcement procedures” exist between the United Kingdom and Lebanon, failing which, disputes were to be submitted to arbitration. The Court found that the ordinary and natural meaning of the words required the existence of a multilateral/ bilateral treaty facilitating reciprocal enforcement of judgments in the United Kingdom and Lebanon. Since no such treaty existed, an anti-suit injunction should be granted against the Respondents in respect of proceedings they had brought in Lebanon.
The UK Claimant and Lebanon-based Respondents entered into an Agreement for the distribution of gas and diesel engines in Lebanon. The Agreement contained a dispute resolution agreement which stated:
“This Agreement shall be deemed to be an agreement made in England and shall be read and construed and take effect in all respects in accordance with the Laws of England and the Parties hereby submit to the jurisdiction of the English Courts.
To the extent there is no reciprocal enforcement procedures between the United Kingdom and the country in which the Distributor is located, the Parties agree to submit any dispute arising between them that cannot amicably be settled to arbitration. The arbitration shall be held in London, England …”
The Claimant alleged that the Respondents had made sales into Syria in breach of the Agreement and therefore sought to terminate it. The Respondents commenced proceedings against the Claimant in Lebanon under a Lebanese law that entitles a commercial representative to damages where their principal has unlawfully terminated the representation agreement. Meanwhile, the Claimant sent a Notice of Arbitration to the Respondents purporting to refer the dispute to arbitration in England. The Respondents did not take part in the arbitration.
The Claimant sought an anti-suit injunction in respect of the Lebanese proceedings, alleging that it was commenced in breach of the arbitration agreement between the parties.
The focus of the anti-suit application was on the meaning of the words “to the extent there is no reciprocal enforcement procedures between the United Kingdom and [Lebanon]“.
The Claimant contended that the ordinary and natural meaning of these words required the existence of a multilateral or bilateral treaty facilitating the reciprocal enforcement of judgments in the United Kingdom and Lebanon. The Claimant laid special emphasis on the use in the clause of the words (1) “between”, since only a treaty can exist between countries, and (2) “United Kingdom”, since the UK, unlike England (which is used elsewhere in the clause) is not a legal jurisdiction, but a country that can enter into a treaty. Further, it was contended by the Claimant that interpreting “reciprocal enforcement procedures” to mean international treaties provided the parties with a certain, speedy and simple means to determine whether they are obliged to arbitrate or litigate, and guaranteed them clear enforcement rights prescribed by an international treaty. The fact that Lebanon was not party to the New York Convention at the time of entry into the contract was not significant since it would have applied in many other countries where the Defendant had assets. This approach would be consistent with business common sense and reasonableness.
The Respondents, in turn, claimed that the clause merely required reciprocity of procedures in both countries that would ensure that judgments delivered in one country would be enforceable in another. They argued that this was the case under the common law enforcement rules in England, and also as a matter of Lebanese law. It was also argued that a clause ousting a party’s important judicial right to sue for compensation in their local courts in exchange for arbitration needed to be clear and justified. The term “treaty” was mentioned nowhere in the clause and interpreting it into the clause would be a “gloss” over the actual text.
The court adopted the rules of interpretation in the context of dispute resolution provisions laid down in Fiona Trust (i.e. that the court should give effect to the commercial purpose by ascertaining the reasonable commercial expectation of rational businessmen) and held that the Claimant’s interpretation was true to the ordinary and natural meaning of the words and also was consistent with commercial common sense.
Since no treaty for enforcing English judgments in Lebanon and vice versa existed between the UK and Lebanon it was held that there are no “reciprocal enforcement procedures” and an interim anti-suit injection was granted with respect to the Lebanese proceedings in support of the arbitration agreement.
In interpreting “reciprocal enforcement procedures” to require agreement at a state-to-state level by way of a bilateral or multilateral treaty for enforcement of judgments, the court has set a high threshold. The availability of domestic procedures within either country which would allow for the enforcement of foreign judgments were not considered sufficient in this context. In any event, on the facts the judge considered that there would likely have been no reciprocity of enforcement available under such domestic procedures.
This decision also has potentially wider implications, particularly in the context of Brexit. Post-Brexit, the UK has indicated its intention to continue arrangements akin to those under the Brussels Recast Regulation subject to EU agreement, and will in any event sign the Hague Convention on the Recognition and Enforcement of Foreign Judgments (to which the EU is already party). A number of businesses are considering “Brexit clauses” which provide for English court jurisdiction where judgments would be enforceable in the EU under an agreed reciprocal regime, failing which, English-seated arbitration is designated as the fallback. The judgment offers some guidance on the principles to consider when drafting such clauses. However, particular care is needed in any such “Brexit-proofing” of contracts, for example given the requirement of an exclusive jurisdiction clause under the Hague Convention, and specific legal advice should be sought.
For more information, please contact Andrew Cannon, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.