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08 August 2013
On June 25 2013 the Caribbean Court of Justice delivered a landmark decision which narrows the circumstances in which a government may resort to its domestic courts to restrain international arbitration proceedings. The court confirmed that its role is to support the parties' agreement to arbitrate, and that it thus should grant an injunction only if it is positively shown that the arbitration proceedings would be oppressive, vexatious, inequitable or an abuse of process. The fact that domestic proceedings had been instituted in Belize was no reason to allow the Belize government to renege on its contractual obligation to arbitrate disputes abroad.
The dispute had its genesis in the 2009 nationalisation of Belize's major telecommunications provider, Belize Telemedia Limited, and the compulsory acquisition by the government of loan facilities of approximately US$24 million which British Caribbean Bank Limited (BCB) had extended to Telemedia. This resulted in a flurry of litigation with the government, including the concurrent pursuit by BCB of its claim challenging the constitutionality of the compulsory acquisition of its property and the pursuit of arbitral proceedings for breach of a bilateral investment treaty (BIT) concluded between the governments of Belize and the United Kingdom on April 30 1982. In response, the government instituted proceedings in Belize for various declarations and orders related to the arbitration proceedings, including an injunction restraining BCB from continuing with the arbitration.
The government argued at both the Supreme Court and the Court of Appeal that BCB's concurrent pursuit of its constitutional challenge and international arbitration constituted a multiplicity of proceedings and was vexatious and oppressive to the government. The government succeeded in its argument before both courts.
At the Supreme Court, the trial judge applied the test set out in American Cyanamid Co v Ethicon(1) and concluded that there were serious issues to be tried as to whether the BIT was in force in Belize and whether it created any binding obligations on the government in municipal or international law. The trial judge also considered that the balance of convenience lay in favour of the government, as it would be vexatious and oppressive for the government to be required to defend simultaneously the constitutional challenge and the international arbitration proceedings.
BCB appealed to the Court of Appeal, which by majority agreed that the trial judge had exercised his discretion on incorrect principles and had erred in granting a permanent injunction instead of an interlocutory injunction. The judges therefore reconsidered the matter and exercised their own discretion. Again applying American Cyanamid, the majority of the Court of Appeal concluded that there was a serious issue to be tried as to whether the multiplicity of claims in the court rendered the arbitration vexatious and oppressive, and that the balance of convenience lay in favour of the government. The judges considered in particular:
The judges concluded that the BIT was in force and created binding obligations on the government, but that the dispute between the government and BCB would not be ripe for arbitration until it was determined whether BCB's loan facilities had been lawfully expropriated. The dissenting judgment emphasised that the BIT conferred on BCB an "indefeasible" and "unqualified" right to arbitrate, and that by granting the injunction the court was facilitating Belize's breach of its international obligations.
BCB appealed the Court of Appeal decision to the Caribbean Court of Justice and the appeal was heard before the court in Trinidad in April 2013. In its written decision delivered on June 25 2013, the Caribbean Court of Justice stated several fundamental determinations.
The Caribbean Court of Justice concluded that although under the BIT there was no unqualified or indefeasible right to arbitrate, there are no preconditions to the right to submit the dispute to international arbitration. The BIT constitutes a free-standing offer, which is accepted on submission of the dispute to arbitration and becomes a binding contract between the investor and the state party. There is no requirement to exhaust domestic remedies before proceeding to arbitration. This is an eminently reasonable interpretation of the BIT, since the utility of BITs would be undermined if an investor were required to exhaust remedies in domestic courts before proceeding to international arbitration. As the Caribbean Court of Justice stated, "An important objective of international arbitration is to avoid possible pitfalls of domestic litigation."(2)
The Caribbean Court of Justice determined that the Court of Appeal had erred in applying the American Cyanamid test, since the case involved no dispute of fact and the court was seized of all relevant materials – there was nothing further to be disclosed to the trial court. The proper question for the Court of Appeal in such a case is "whether it is just and convenient to uphold the injunction".
The Caribbean Court of Justice clarified the law as to the exceptional circumstances in which a court could grant an interim injunction restraining international or foreign arbitration. The court approved Elektrim SA v Vivendi Universal SA(3) and concluded that there were only two bases on which an injunction to restrain international arbitration could be granted: "First, if the proceedings are an infringement of a legal or equitable right of a party; secondly where those proceedings are vexatious, oppressive, or unconscionable."
The court emphasised that the jurisdiction to grant an anti-arbitration injunction must be exercised with caution and an injunction should be granted only if the arbitral proceedings are vexatious or oppressive. There is no presumption that a multiplicity of proceedings, without more, is vexatious. The equitable basis of the jurisdiction makes it a remedy based on the wrongful conduct of the person sought to be restrained. On application to restrain international arbitration proceedings, the court must re-double the caution it normally exercises in restraining foreign proceedings, because of the importance of recognising and enforcing the parties' agreement to arbitrate their disputes and the accepted principle of international law that the arbitral tribunal should not be subjected to the control of domestic courts before it makes an award.
In considering the facts of the case, the Caribbean Court of Justice concluded that it was neither vexatious nor oppressive for BCB to simultaneously pursue international arbitration and its constitutional challenge. The court stated that there were many advantages to BCB's pursuit of arbitration, as the relief for breach of the BIT was qualitatively different from the relief that BCB could obtain from the domestic courts. The fact that it may be inconvenient or expensive for the government to litigate before the arbitral tribunal could not justify a finding of vexation or oppression. The scheme of the BIT is contractual and Belize consented to international arbitration as the method for settling disputes under the BIT. The Caribbean Court of Justice also considered that the likelihood that either the court or the tribunal would make an order which would afford BCB double relief was remote. There was therefore no basis for the Court of Appeal to conclude that BCB's pursuit of international arbitration would be oppressive or vexatious.
The Caribbean Court of Justice accepted that an undertaking, properly worded, would further minimise the risk of double recovery and any prejudice that may result from that circumstance. BCB had offered an undertaking that if the injunction were discharged, it would suspend its claim for compensation under the acquiring legislation and would ensure there would be no double recovery. However, it reserved its right to proceed with its domestic claim for compensation if the arbitrators declined jurisdiction or if it received an arbitral award that was not paid within 90 days. The court stated that the giving of undertakings of this kind is commonplace in international commercial disputes and that it should have been accepted by the Court of Appeal.
The Caribbean Court of Justice decision is considered an absolute victory by BCB, which has had to exhaust Belize's appellate process to be finally permitted to vindicate its rights in international arbitration. The decision is an important victory for international investors in the Commonwealth Caribbean generally, since many BITs in the region include clauses for resolution of investment disputes by international arbitration.
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