August 2013: Arbitration Update

U.K. Supreme Court Affirms Power of English Courts to Issue Anti-Suit Injunctions Against Proceedings Commenced Overseas in Breach of an Arbitration Agreement. The U.K. Supreme Court recently handed down its decision in Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant LLP ([2013] UKSC 35), a dispute between a Kazakhstani hydroelectric plant owner and the operator of that plant. The ruling affirmed the power of English courts to restrain foreign proceedings that violate arbitration agreements, at least if they were commenced in a jurisdiction outside the regime of the EU Brussels Regulation (44/2001) or the Lugano Convention.

The plant owner and plant operator entered into an agreement requiring the arbitration of all disputes in London. Even so, the plant owner later brought suit against the plant operator in a Kazakhstan court. Shortly after, the plant operator sought from an English court an injunction prohibiting the plant owner from commencing or pursuing legal proceedings in Kazakhstan. The court granted the plant operator’s request based on the terms of the parties’ arbitration agreement, and two higher courts affirmed that decision. The plant owner then appealed to the U.K. Supreme Court.

Affirming the lower courts, the U.K. Supreme Court stated that nothing in the Arbitration Act 1996 removed the power of English courts to declare rights and to enforce the “negative obligation” of an arbitration agreement—i.e., the express or implied agreement not to bring actions outside of the forum specified in the agreement. Because the Kazakhstan court did not enforce the parties’ agreement to resolve the dispute in England, English courts could intervene to do so, even where arbitration proceedings have not been commenced or are in contemplation.

The U.S. Supreme Court Tentatively Re-Opens the Door to Class-Wide Arbitration. Aside from the Supreme Court’s decision enforcing class action waivers in arbitration clauses in American Express Co. v. Italian Colors Restaurant, discussed above, in Oxford Health Plans v. Sutter, No. 12-135, slip op. (U.S. June 10, 2013), a unanimous Supreme Court held that, where parties agree to allow an arbitrator to decide the availability of class-wide arbitration, and the arbitrator purports to do so based on the underlying arbitration agreement, courts cannot overturn the arbitrator’s decision even if it is wrong.

Sutter, a doctor, and Oxford Health Plans, an insurer, entered into a contract that required binding arbitration of contractual disputes. Sutter later brought suit in state court against Oxford on behalf of himself and a proposed class of doctors, alleging Oxford violated their contracts. The state court compelled arbitration based on the parties’ contract. The parties then agreed that the arbitrator should decide whether their contract authorized class arbitration, and the arbitrator concluded that it did. However, following the U.S. Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 548 F. 3d 85 (2010)—which held that an arbitrator may employ class procedures only if the parties authorized them—Oxford sought to vacate the arbitrator’s decision in federal court, arguing the arbitrator “exceeded [his] powers” under Federal Arbitration Act §10(a)(4).

Affirming the lower courts, the Supreme Court held that the arbitrator’s decision survived the limited judicial review permitted by § 10(a)(4). The Court stated that where the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision that even barely construes the agreement must stand. Therefore, the sole question on judicial review is merely whether the arbitrator interpreted the contract, not whether the contract was interpreted correctly. Because the parties here agreed to have the arbitrator decide the availability of class-wide arbitration and the arbitrator purported to do so, the Court refused to vacate the decision.