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Bankers Trust Company and another v.
PT Mayora Indah
(England and Wales) High Court of Justice (Commercial Court), Coleman J, January 20, 1999.
Arbitration agreement - proceedings commenced in Indonesian courts
including allegations that that the arbitration agreement ultra vires
or not incorporated - court's power to restrain Indonesian proceedings
- test to be satisfied when seeking injunctive relief to restrain
proceedings in a foreign court - whether allegation that substantive
agreement entered into ultra vires a company impugned an arbitration
clause in that agreement - whether arbitration agreement in schedule
to substantive agreement incorporated.
Facts:
The second plaintiff, British Trust International ("BTI") entered into an agreement with the defendant ("Mayora") to regulate certain financial transactions ("the ISDA master agreement"). A schedule to the ISDA master agreement included an arbitration clause. Disputes arose between the parties as to whether Mayora had defaulted in making payments to BTI as required by the ISDA master agreement. Subsequently, BTI transferred the ISDA master agreement to the first plaintiff ("BTC") under a facility, also incorporated in a schedule to the agreement, which provided that BTI might transfer its rights and obligations in whole, but not in part, to
BTC.
Mayora commenced proceedings in the Indonesian court in respect of certain of the disputes between the parties. The plaintiffs applied to the court by arbitration application for various injunctions restraining and prohibiting Mayora from pursuing or commencing proceedings in the Indonesian courts in breach of the arbitration agreement. The plaintiffs also commenced proceedings by writ, seeking similar relief on the basis that it would be unjust for the Indonesian proceedings to continue, because circumstances that pertained in the Indonesia courts might not produce a just conclusion to the trial.
Mayora had, in the Indonesian proceedings raised a number of challenges to the validity of the arbitration agreement. First Mayora alleged that the ISDA master agreement, and thus the arbitration agreement, was not binding because it was ultra vires the company to enter into it. Secondly it alleged that the arbitration agreement was not incorporated, as it was in a schedule, and Mayora had only agreed to the ISDA master agreement. The court considered these contentions in deciding whether to grant the injunctions claimed, since Mayora had not entered an appearance and was not represented at the inter partes hearing.
Held:
The arbitration agreement in the ISDA master agreement provided for arbitration under the LCIA of "any dispute, controversy or claim howsoever arising out of or in connection with this agreement or the breach thereof, including any questions regarding its existence, validity or termination …". On the face of it, these words were wide enough to cover a dispute relating to whether Mayora were, in fact, parties to the ISDA master agreement or the arbitration agreement under it, by reason of their acting ultra vires in entering into the ISDA master agreement. Equally, these words were wide enough as a matter of English law to cover an argument that the ISDA master agreement had not been entered in to in the first place because it was not specifically accepted by or executed by representatives acting on behalf of Mayora with due authority.
But, in considering whether the court should grant the injunction sought in the arbitration application the court had to be satisfied that there were strong grounds for believing that the relief sought was relief to which the plaintiffs were entitled, there had to be a high degree of probability that their case was right. This was not merely an American Cyanamid test, but went beyond that because the effect of granting an injunction to continue until after the hearing of any arbitration pursuant to the arbitration clause would be to enforce the arbitration agreement, as distinct from preserving the status quo pending a trial prior to the arbitration going any further.
Considering the contentions raised by Mayora in the Indonesian proceedings, it was clear that the plaintiffs were entitled to the injunctions claimed in the arbitration application.
Mayora's ultra vires argument raised the question of whether an arbitration agreement was itself tainted by the lack of vires relied on by Mayora. But English law made clear that an arbitration agreement was a free standing and severable adjunct to the underlying agreement in relation to which it was intended to operate. It could continue if the underlying agreement was unenforceable even, for example, for illegality. It was also clear that, had the ISDA master agreement not contained an arbitration agreement, the parties could have agreed to refer the dispute about whether Mayora had entered into it ultra vires its powers, to an ad hoc arbitration. Extending these principles, there was no reason in principle why the arbitration agreement they did enter into should not remain fully enforceable for the purpose of resolving the dispute as to the ultra vires nature of the underlying agreement. The plaintiffs had established a very strong probability that the arbitration agreement was not impugned by this allegation, even if correct.
As for Mayora's contention that the arbitration agreement in the schedule was never accepted or never executed by it, the documents available to the court showed beyond doubt that Mayora did agree that the schedule should be incorporated into and be applicable to the ISDA master agreement. Mayora having seen a copy of the final draft of the ISDA master agreement asked for a copy for execution. The copy sent clearly included the schedule that, in Part 5, included the arbitration agreement. The ISDA master agreement was subsequently signed by a person described as the President of Mayora, and a letter of approval was also sent by two persons described as President and Commissioner of Mayora. Thus it was agreed by those apparently representing Mayora that the parties would be bound by the ISDA master agreement and the schedule, including the arbitration agreement.
As to the question of enforcement in English law, the parties having agreed to arbitration, if one of them referred disputes encompassed by that agreement to the courts of a particular jurisdiction it was liable to be restrained by the English courts by injunction from pursuing the court proceedings. In particular where the arbitration was, as here, a New York Convention arbitration. This was so even if there might be a local remedy available by which an application could be made to stay the Indonesian proceedings, particularly if the respondent manifestly refused to take steps not to proceed with the action in the Indonesian courts and showed every sign of resisting any attempt to prevent intervention with that objective in the Indonesian courts. Neither had Mayora advanced any explanation, other than those advanced in the Indonesian proceedings, for proceeding in the Indonesian courts. In consequence, the court should exercise its discretion in favour of granting the injunctions sought in the arbitration application. The fact that the tribunal appointed by the LCIA in the arbitration, albeit without the participation of Mayora, had the very highest skill and credentials at international level, also supported the grant of the injunctions sought.
Although there had been a transfer of rights under the ISDA master agreement to BTC, including accrued rights, nevertheless BTI, the transferor, might still have a residual interst in the enforcement of the ISDA master agreement and rights arising in respect of pre-transfer breaches. Accordingly, the injunction in the arbitration application was properly claimed not only by BTC but by
BTI.
The injunction claimed in the proceedings commenced by writ would, however, be refused. This was put forward, as a protective measure, on the basis that it would be unjust for the Indonesian court proceedings to proceed because, in the circumstances, the Indonesian courts might not produce a just conclusion. This application had to be approached on a basis that left out of account any reference to arbitration, as this was the subject of the arbitration application. Considered in this way, it was never particularly satisfactory for the courts of one country to have to take a view as to the probability or otherwise of the fair conduct of the justice system in another country. A particularly strong case would have to be made out before an injunction in the terms claimed in the writ proceedings would be appropriate and, given that the evidence before this court was largely anecdotal, no such case had been made out.
For the plaintiffs: Mr I Milligan QC and Mr D Owen (instructed by Messrs Linklaters and Paines).
The defendant did not appear and was not represented.
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