In a decision raising an important legal issue as to the primacy of the powers of the court contained in sections 67 and 68 of the English Arbitration Act, 1996, the English Court of Appeal in Minister of Finance (Incorporated) & Anr v International Petroleum Investment Company & Anr  EWCA Civ 2080 allowed an appeal and made rare orders granting an injunction restraining arbitration proceedings and lifting a case management stay of applications to challenge an earlier arbitration award under ss.67 and 68 of the Arbitration Act 1996.
In the first instance decision, the Judge used case management powers to stay applications under sections 67 and 68 made by the MoF, which had the effect of allowing two arbitrations commenced subsequently by the defendants to proceed to decide factual issues relating to the circumstances in which a consent award was entered into in a first and prior arbitration between the parties. The judge also refused to restrain the defendants under section 37(1) of the Senior Courts Act 1981 from continuing the second arbitrations.
The Stay Application
The claimants contended that the judge only identified one positive justification for granting the stay of the proceedings under sections 67 (lack of jurisdiction) and 68 (serious irregularity), namely to avoid unnecessary duplication, but the Judge should have placed greater weight on the structure of the 1996 Act and the provisions of section 4 and schedule 12 of the 1996 Act, which make sections 67 and 68 mandatory “notwithstanding any agreement to the. Had he done so, he would have realised that he was either required to allow the court applications to go first or he ought to have done so as a matter of discretion. The defendants submit that the judge made an entirely proper exercise of discretion, and that there was no legal requirement that the issues raised by applications under sections 67 and 68 should be determined entirely by the court.
The CA stated  that when an application to challenge an award is made under sections 67 or 68, it is prima facie the duty of the court to determine that challenge and to do so as promptly as possible. In so doing the court is not merely giving effect to the agreement of the parties but is performing an important public function
The CA explored the public interest engaged when an award is challenged, stating [45-47]:
“It is in the public interest that a valid arbitration award should be recognised and enforced and, in this jurisdiction, such an award may be enforced by making use of the coercive powers of the state to enforce a court judgment. Internationally, an award which is valid in accordance with the law of the seat can be enforced pursuant to the 1958 New York Convention (the “NY Convention”), with only limited grounds on which recognition or enforcement may be refused by the enforcing court. Conversely, it is against the public interest for the powers of the state to be utilised to enforce an award in a case where the arbitrators had no jurisdiction or which is the result of a “serious irregularity”. In the latter case, it is as well to bear particularly in mind the high hurdle which an applicant must overcome in order to demonstrate that there has been a serious irregularity, which includes proof of substantial injustice.”
“Until a challenge under section 67 or 68 is determined by the court of the seat of the arbitration, the status of the award is uncertain. Some jurisdictions may enforce such an award; others may not. Article VI of the NY Convention gives the court hearing an application to enforce an award a discretion to adjourn its decision when a challenge to the award is pending before the courts of the seat. Evidently, therefore, a decision by the court of the seat to postpone a decision on a court challenge prolongs the period within which the status of the award will be uncertain and gives rise to a risk of injustice, either because an award which is ultimately set aside is enforced or because enforcement of an award which is ultimately held to be valid may be refused or delayed. The scheme of the NY Convention is that it is the court of the seat which will determine the validity of the award. For so long as a challenge remains unresolved, there is a risk that the same issue will be litigated in a number of jurisdictions, wherever enforcement is sought. The need for promptness and finality in dealing with challenges under sections 67 and 68 is underlined by the provision in each of those sections that an appeal may only be brought with the permission of the court hearing that challenge.”
“These authorities and matters suggest that a stay of court applications under sections 67 and 68 on case management grounds should only rarely be granted, and that there should be compelling grounds for the grant of such a stay. That was what this court held in comparable circumstances in Reichhold, but it applies with particular force in circumstances such as the present case.”
The CA found that the Judge exercised his case management power to stay the court applications under sections 67 and 68 on the wrong legal basis. The CA stated :
“In our judgment, the judge’s decision proceeded on a false premise. He held that the claimants’ court applications elevated the supervisory jurisdiction above the concurrent jurisdiction of the second arbitrations, when both derived from party autonomy. But he failed to recognise, as we have sought already to explain, that: (a) the claimants had a right, which the defendants had agreed they should have, and which had effect notwithstanding any agreement to the contrary, to challenge the consent award under sections 67 and 68, (b) the grounds of challenge affected Mr Najib’s authority to enter into the deeds of settlement at all and would, therefore, undermine the arbitration agreement contained within them, (c) it is the responsibility of the court to determine challenges under sections 67 and 68, and to do so as promptly as possible, (d) the election to arbitrate could not dictate the position in respect of challenges under sections 67 and 68, which were no longer consensual, (e) courts exercising their supervisory role under the 1996 Act do so as a branch of the state, not as a mere extension of the consensual arbitration process, and (f) the court exercising its supervisory jurisdiction under sections 67 and 68 must do so quickly to avoid uncertainty and injustice in the enforcement process.”
The CA noted that the Judge correctly identified the test that had to be applied, namely whether this was
one of the rare cases where a compelling case had been shown for a stay to be granted, and in considering whether there should be a stay of the claimants’ court applications to allow the second arbitrations to determine the facts upon which those court applications are founded, the CA held that there were no compelling reasons to grant such a stay, noting the following matters:
- the right to commence and progress properly brought court applications under sections 67 and 68 was necessary in the public interest. The court was performing an important public function in resolving such disputes;
- it was clear from the requests for arbitration in the second arbitrations that the defendants’ commencement of the arbitrations was a reaction to the claimants’ court applications;
- the Judge was not right in thinking that a stay would avoid unnecessary duplication;
- the principle of party autonomy, relied upon by the defendants, also pointed against the grant of a stay;
- the result of imposing a stay was that, in order to continue their court applications challenging the consent award, the claimants had to defend themselves against large financial claims in the second arbitrations.
In relation to the refusal of the injunction to restrain the second arbitrations, the claimants contended that the judge failed to apply the correct two-stage legal test in Claxton Engineering Services Ltd v. TXM Olaj-es Gazkutato Kft (No 2)  EWHC 345 (Comm),  2 All ER (Comm) 128. He did not ask first whether the claimants’ legal or equitable rights had been infringed or threatened by a continuation of the second arbitrations, or whether their continuation would be vexatious, oppressive or unconscionable, before considering, secondly, whether the injunction should be granted as a matter of discretion. Had he done so, the judge would have concluded that the claimants’ right to have the proceedings under sections 67 and 68 determined first was indeed infringed by the prosecution of the second arbitrations, which were themselves vexatious, and that an injunction ought to be granted. The defendants submitted that the judge did indeed cite and correctly apply the two-stage approach.
The CA stated :
Accordingly, in our judgment, the judge exercised his discretion to refuse an injunction under section 37(1) on the wrong legal basis. He should have directly answered the first two questions we have set out in order to determine whether there was a basis for holding that the necessary exceptional circumstances existed for the grant of such an injunction. He should then, if exercising a discretion, not have done so on the basis that a case management stay was being granted.
The CA reconsidered whether it ought to grant an injunction to restrain the second arbitrations, stating :
“In order to determine whether the required exceptional circumstances exist, the first and second questions are whether either the claimants’ rights have been infringed or threatened by a continuation of the second arbitrations and/or whether continuation of the second arbitrations would be vexatious, oppressive or unconscionable. In our judgment, both these conditions are satisfied in this case because the defendants are pursuing the second arbitrations in which they contend (a) that the pursuit of the court applications are themselves events of default under the settlement deeds, and (b) that the events of default in question trigger the claimants’ substantial and immediate financial liability. Those claims infringe and threaten the claimants’ undoubted legal right to pursue the court applications under sections 67 and 68, and are vexatious and oppressive. We refer in this regard to the principles explained above as to the public interest in allowing parties that have agreed to an English seat of arbitration to pursue the limited supervisory remedies permitted under the 1996 Act. It is not legitimate for the defendants to seek to enforce the clauses of the settlement deeds that attempt to suppress the court’s review of the consent award, to which the parties specifically agreed in the binding term sheet. Mr Howard was prepared to accept that there may be arguments as to whether the terms of the settlement deeds which have this effect are void as being penal or otherwise contrary to public policy. We are sure that such arguments could be advanced, but what matters for present purposes is that the defendants are contending vigorously in the second arbitrations that the terms in question are valid and enforceable. They cannot in such circumstances sensibly say to this court that no harm may be done because the arbitrators may rule that the terms are unenforceable. The defendants will, on their own case, be seeking to persuade the arbitrators that the terms are enforceable. If they succeed, the defendants will no doubt contend that the decision is not subject to review by the court because, even if the arbitrators are wrong, any error is one of law and the parties have excluded an appeal under section 69 of the 1996 Act which would be the only means of putting the error right.”
“…the only appropriate exercise of discretion is to grant an injunction to restrain the pursuit of the second arbitrations. The court applications will proceed to determine the validity of the consent award, and it is just and convenient that the second arbitrations should not proceed until that has been determined. The injunction will bring the defendants’ vexatious conduct to an end. It will also ensure the objective which the defendants and the judge have sought to achieve, namely to avoid what the judge described as “the risk of parallel proceedings and costs and [a] possible ‘rush to judgment.”
See the following reviews:
Latham & Watkins comment:
“The judgment makes clear that the English courts will not allow parties to contract out of ss.67 and 68 of the Act and any attempt to seek to enforce such a clause will be unsuccessful. The Court of Appeal therefore affirmed that the English court, when invoked under ss.67 and 68 of the Act, will exercise its supervisory jurisdiction to review arbitral awards to decide whether they should be recognised and enforced both in this country and worldwide. In doing so, the English court is performing an important public function, as a branch of the state.”