Suppression of parallels
Mergers and acquisitions, multisource financing, large infrastructure projects are inevitably connected with issues of multiple contracts and their parties when structuring similar transactions. As a result, in the event of disputes, several jurisdictions and different parties may be involved in them simultaneously.
Over the past few years, arbitration institutions have been actively reviewing arbitration regulations to provide equal opportunities to parties to adduce the arguments within one arbitration proceeding in this category of cases.
Nevertheless, it’s impossible to completely exclude the possibility of parallel arbitration and judicial processes in view of improper preparation by the parties of clauses about the settlement of disputes, their contradiction or incompleteness, emergence of accompanying non-arbitrable issues, such as, for example, the existence of fraud or corruption in the actions of one of the parties, strategic considerations of the parties, etc.
In reality, parallel proceedings are initiated both by the parties protecting their legitimate rights and interests, and their unjust counterparties so as to delay a proceeding as long as possible and deplete the opponent's resources.
The following tools are most often used to counteract parallel proceedings.
The statement on existence of an arbitration clause in a court. If a judicial proceeding is initiated contrary to the valid arbitration clause, the interested party can ask a court to direct the parties to arbitration, since the matter at issue is a subject of the arbitration agreement. At the same time, if the jurisdiction in which the case is considered is favorable to the arbitration of disputes, the court will certainly direct the parties to arbitration.
If a court proceeds to consider the case in fact, arbitration can be continued, since the arbitration tribunal, according to Article 8 of the Model Law of United Nations Commission on International Trade Law (UNCITRAL) on international commercial arbitration, is not obliged to halt a case in the event of parallel legal proceedings (lis pendens rule in arbitration, as opposed to the courts, is not applied). At the same time, the possibility of recognition and execution of such decision in the corresponding jurisdiction and other jurisdictions is still unresolved. Thus, if arbitration is at the initial stage and the timeframes of the decision are not known, it is expedient to consider the possibility of suspending arbitration and concentrating efforts on challenging the decision on invalidity of an arbitration clause in a court.
Lis pendens and res judicata. Such mechanisms are themselves not effective. Compared to legal proceedings, when it is about arbitration, lis pendens and res judicata have very limited action. In some cases, if, for example, it is about parallel criminal proceeding, the arbitration tribunal may suspend the proceedings at the request of the party before completion of criminal proceedings. The reason may be the fact that the evidence found during criminal proceedings is necessary for fair settlement of the dispute by arbitration.
Judicial and arbitration injunctions. Judicial (anti-suit injunctions) and arbitration injunctions (anti-arbitration injunctions) are quite aggressive and contradictory mechanisms of protection against parallel proceedings, since it is not always possible to execute them in practice in the international context. The attitude of the European Court of Justice — the principal judicial body of the EU — to judicial injunctions is set out in the decision on the West Tankers case (2009), in which the court noted that the judicial decree of the EU member state on restricting the person’s right to initiate or continue judicial proceedings in another EU member state in view of his/her non-compliance with the arbitration clause is incompatible with the Brussels Regulation.
At the same time, due to the fact that the Brussels Regulation does not apply to arbitration, in another case — Gazprom OAO v Lietuvos Respublika (2015) — the court took a more favorable position towards the judicial injunction, delivered by an arbitration tribunal, having allowed courts to recognize arbitration judgments containing the injunction on taking legal steps against the court.
Proceeding from Article 8 of the Model Law of UNCITRAL, arbitration injunctions, if this is not about common law countries, do not oblige an arbitration tribunal to suspend proceedings, but can indirectly lead to similar consequences when, for example, the jurisdiction in which the injunction is in force is the only possible place for recognition and execution of the arbitration judgment.
The practice of Ukrainian courts regarding judicial injunctions is quite interesting. Thus, courts of the first instance and appeal courts with regard to case No. 2-9509/07 have regarded the judicial injunction in the decision of commercial arbitration as violation of the right to judicial protection. Having revised these decisions, the Supreme Commercial Court emphasized that judicial injunctions should be interpreted on the basis of the right, to which the parties have subordinated the agreement (the right of the State of New York), and courts have no right to carry out a legal assessment of the decision of the New York arbitration.
Since none of the above mechanisms protects in full against undesirable parallel proceedings, one should be very attentive when drawing up the arbitration clause. If the relations between the parties are regulated not by one contract, it is expedient to consider the possibility of including the identical arbitration clause in each contract. Most arbitration institutions provide separate model clauses in the event of multiplicity of parties.