International Arbitration Clause Trumps Local Court Proceedings

A recent UK Supreme Court decision, Kamenogorsk Hydropower Plant JSC (Appellant) v AES Ust-Kamenogorsk Hydropower Plant LLP (Respondent) [2013] UKSC 35, may offer further protection for international arbitration. The decision supports the proposition that parties should be bound by their agreement to submit disputes to arbitration and may prevent parties pursuing claims through local courts.

The UK Supreme Court decision may offer parties a way to:

avoid local court proceedings where there is an arbitration agreement; and resist enforcement of local court orders against assets held in the UK. A party may be able to obtain an order for an "anti-suit injunction" from a UK court to stop the other party from continuing with local court proceedings - even if an arbitration has not started.

Why do parties use arbitration clauses?

The advantages of arbitration are well known.

Parties often prefer arbitration to litigation:

as arbitral awards are more easily enforced in countries covered by the New York Convention, as arbitration can be more confidential than public court proceedings; for perceived neutrality; and to enable greater control over the composition and expertise of the arbitral tribunal compared to a local court (with whom an international party may have little experience). Local court proceedings versus arbitration clauses

Arbitration agreements are protected under UAE Law.

Article 203 of the UAE Civil Procedure Code1 provides that parties cannot bring court proceedings regarding a dispute that is covered by a valid arbitration clause. If a party starts local court proceedings despite the dispute being the subject of an arbitration agreement, the other party can apply to have those proceedings stayed.

If, however, the local court decides not to stay the proceedings, the parties will lose the benefit of the arbitration agreement. The court may decide that the arbitration agreement should not be followed if it is poorly drafted and uncertain, the signatories to the arbitration agreement did not have the requisite authority, or the subject matter of the dispute cannot be arbitrated due to public policy.

There is little that can be done under UAE law and procedure to reverse the effects a decision not to stay proceedings. An aggrieved party may, however, be able to take steps in the courts of the jurisdiction that is the "seat" of the arbitration agreement.

The recent UK Supreme Court decision of Ust-Kamenogorsk Hydropower Plant JSC...