After West Tankers Rise of the Foreign Torpedo? By STUART DUTSON and MARK HOWARTH Reprinted from (2009) 75 Arbitration 334-348 Sweet & Maxwell 100 Avenue Road Swiss Cottage London NW3 3PF (Law Publishers)
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? After West Tankers Rise of the Foreign Torpedo? by STUART DUTSON and MARK HOWARTH 1. INTRODUCTION Arbitration agreements in favour of London for commercial disputes within Europe were dealt a notional blow by the recent European Court of Justice s (ECJ) decision in Allianz SpA v West Tankers Inc. 1 Following this case the English courts can no longer deploy their traditional weapon of choice, the anti-suit injunction, in response to proceedings started elsewhere in EU or Lugano 2 states in breach of an agreement to arbitrate. As these so-called torpedo actions are often brought in Brussels regime states where the judicial process is particularly slow or complex, or more likely to favour a local litigant, the risk of frustrating the arbitration process is real: unanticipated and potentially significant costs incurred in dealing with foreign court proceedings may render continuation of the arbitration nugatory, notwithstanding the threat of res judicata. The anti-suit injunction has traditionally been viewed as the primary antidote to deal with such tactical litigation; however its removal in the European context should not leave the innocent party without effective legal redress. Following the West Tankers decision, it can be expected that there will be a sharper focus on potential mechanisms for holding the parties to their original agreement, and the possible remedies where this cannot be done successfully, as well as safeguards to reduce the risks associated with unexpected satellite litigation. This article considers these issues in the context of an analysis of the legal and practical implications of the ECJ s decision and guidance provided by recent English case law. It also addresses, in brief, the possible future direction of regulation in this area following publication of the European Commission s report on the application of the Judgments Regulation. 3 2. BACKGROUND The Front Comor, a ship owned by West Tankers, had been chartered to Erg Petroli SpA (Erg). The charterparty was governed by English law and provided for arbitration in London. The vessel collided with a jetty in the port of Syracuse, Sicily, causing substantial damage. As a result, Erg made a claim against its insurers, Allianz, for compensation up to the limit of its cover and commenced arbitration proceedings in London to recover the balance of its losses. Allianz subsequently commenced subrogated proceedings against West Tankers in the Italian courts seeking to recover the amounts paid to Erg under the insurance policy. West Tankers challenged the Italian proceedings in the English courts on the basis that the insurer s claim was covered by the arbitration agreement. The owners requested, amongst other relief, 1 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v West Tankers Inc (C-185/07) [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435. 2 i.e. Iceland, Norway and Switzerland (for convenience, the EU Member States and Lugano Convention states are hereinafter referred to collectively as the Brussels regime states). 3 Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters COM(2009) 174 final. 334 August 2009
(2009) 75 ARBITRATION 3 an anti-suit injunction requiring Allianz to discontinue the Italian proceedings. The case went to the House of Lords. 4 3. THE REFERENCE The Law Lords made a referral to the ECJ on the question of whether anti-suit injunctions issued to give effect to arbitration agreements are compatible with Regulation 44/2001 5 dealing with the EU rules on jurisdiction in civil and commercial disputes, more commonly known as the Judgments Regulation. Lord Hoffman put the case for maintaining the anti-suit injunction in the English courts judicial arsenal in strong terms. In his view, notwithstanding the adverse momentum built up following the ECJ decisions in Gasser v MISAT Srl 6 and Turner v Grovit 7 which effectively precluded anti-suit injunctions in defence of exclusive jurisdiction agreements where another Brussels regime national court is engaged in this context the anti-suit injunction fell outside the scope of the Judgments Regulation by virtue of the arbitration exclusion in art.1(2)(d). In particular, as the proceedings relate to protection of the contractual right to have a dispute decided by arbitration, he submitted that they are outside the system of allocation of court jurisdictions which the Judgments Regulation creates. Lord Hoffman also made a powerful argument for the practical necessity of the anti-suit injunction to hold parties to their commercial agreements, thereby promoting legal certainty and reducing the likelihood of conflicting decisions. The House of Lords approach appears to be consistent with the ECJ s reasoning in the earlier cases of Van Uden Maritime BV v Deco-Line 8 and Marc Rich & Co AG v Società Italiana Impianti PA, 9 neither of which concerned anti-suit injunctions but both dealt with the question of the scope of the arbitration exception. Namely, any proceedings whose principal subject matter is arbitration will be covered by the exception and so beyond the Judgments Regulation s reach. For these purposes, the subject matter is arbitration if the proceedings serve to protect the right to have the dispute determined by arbitration. 10 On the face of it, West Tankers was just such a case. 4 West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA (The Front Comor) [2007] UKHL 4; [2007] 1 Lloyd s Rep. 391. 5 Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2001] OJ L12/1. 6 Erich Gasser GmbH v MISAT Srl (C-116/02) [2005] Q.B. 1; [2003] E.C.R. I-14693. The ECJ ruled that a member state court which has exclusive jurisdiction by virtue of the parties agreement, but which is second seised, must stay its proceedings in circumstances where another member state court was seised first until such time as that court has declined jurisdiction. 7 Turner v Grovit (C-159/02) [2005] 1 A.C. 101; [2004] E.C.R. I-3565. The ECJ decided that a member state court is not entitled to prevent a party starting proceedings in another member state court with jurisdiction under the Regulation on the basis such proceedings have been brought in bad faith. 8 Van Uden Maritime BV (t/a Van Uden Africa Line) v Kommanditgesellschaft in Firma Deco-Line (C-391/95) [1999] Q.B. 1225; [1998] E.C.R. I-7091. 9 Marc Rich & Co AG v Società Italiana Impianti SpA (C-190/89) [1992] 1 Lloyd s Rep. 342; [1991] E.C.R. I-3855. 10 The Court of Appeal followed this analysis in Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Assurance Co Ltd (The Hari Bhum) (No.1) [2004] EWCA Civ 1598; [2005] 1 Lloyd s Rep. 67 in reaching the view that: [I]n the case of proceedings brought in breach of contract there was no good reason for diffidence in granting an injunction on the clear and simple ground that the claimant had promised not to bring them. Colman J., in granting the injunction at first instance in West Tankers [2005] EWHC 454 (Comm); [2005] 2 All E.R. (Comm) 240; [2005] 2 Lloyd s Rep. 257, said that he was bound by the Through Transport [2004] EWCA Civ 1598; [2005] 1 Lloyd s Rep. 67 decision. August 2009 335
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? 4. THE ECJ DECISION In a notably thin judgment, the ECJ decided that anti-suit injunctions in support of agreements to arbitrate are incompatible with the Judgments Regulation. While ruling that proceedings seeking anti-suit relief do indeed fall outside the scope of the Judgments Regulation as a result of the art.1(2)(d) exception, the court focused on the secondary effects of such relief on other proceedings ostensibly within the Judgments Regulation to support its decision. 11 The court stated, at [22] and [23]: [I]t must be borne in mind that, in order to determine whether a dispute falls within the scope of Regulation No 44/2001, reference must be made solely to the subject-matter of the proceedings (Rich, paragraph 26). More specifically, its place in the scope of Regulation No 44/2001 is determined by the nature of the rights which the proceedings in question serve to protect (Van Uden, paragraph 33). Proceedings, such as those in the main proceedings, 12 which lead to the making of an anti-suit injunction, cannot, therefore, come within the scope of Regulation No 44/2001. On the basis that tort claims initiated by Allianz in Italy were within the scope of the Judgments Regulation, however, the court considered that the incidental question as to whether these claims were covered by the arbitration agreement was also a preliminary matter for determination by the Italian court. [E]ven though proceedings do not come within the scope of Regulation No 44/2001, they may nevertheless have consequences which undermine its effectiveness, namely preventing the attainment of the objectives of unification of the rules of conflict of jurisdiction in civil and commercial matters and the free movement of decisions in those matters. This is so, inter alia, where such proceedings prevent a court of another Member State from exercising the jurisdiction conferred on it by Regulation No 44/2001.... if, because of the subject-matter of the dispute, that is, the nature of the rights to be protected in proceedings, such as a claim for damages, those proceedings come within the scope of Regulation No 44/2001, a preliminary issue concerning the applicability of an arbitration agreement, including in particular its validity, also comes within its scope of application. It follows that the objection of lack of jurisdiction raised by West Tankers before the Tribunale di Siracusa on the basis of the existence of an arbitration agreement, including the question of the validity of that agreement, comes within the scope of Regulation No 44/2001 and that it is therefore exclusively for that court to rule on that objection and on its own jurisdiction, pursuant to Articles 1(2)(d) and 5(3) of that regulation. 13 As an anti-suit injunction could interfere with the Italian court s ability to exercise that jurisdiction, the ECJ concluded that such relief must be incompatible with the Regulation: [T]he use of an anti-suit injunction to prevent a court of a Member State, which normally has jurisdiction to resolve a dispute under Article 5(3) of Regulation No 44/2001, from ruling, in accordance with Article 1(2)(d) of that regulation, on the very applicability of the regulation to the dispute brought before it necessarily amounts to stripping that court of the power to rule on its own jurisdiction under Regulation No 44/2001. 11 This analysis corresponds with A.G. Kokott s Opinion in the case delivered on September 4, 2008, see Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v West Tankers Inc [2008] 2 Lloyd s Rep. 661. 12 i.e. the English proceedings. 13 See Allianz SpA v West Tankers Inc [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435 at [24] [27]. 336 August 2009
(2009) 75 ARBITRATION 3... an anti-suit injunction, such as that in the main proceedings, is contrary to the general principle which emerges from the case-law of the Court on the Brussels Convention, that every court seised itself determines, under the rules applicable to it, whether it has jurisdiction to resolve the dispute before it...... an anti-suit injunction also runs counter to the trust which the Member States accord to one another s legal systems and judicial institutions and on which the system of jurisdiction under Regulation No 44/2001 is based. 14 While the ECJ did not consider it necessary to refer to any previous decision on the point, given that the court held that proceedings based on the arbitration agreement were outside the scope of the Judgments Regulation, the decision can be read as based on the doctrine of practical effectiveness (effet utile) of EC law. In broad terms, this is the principle that application of national procedural rules must not prejudice the effectiveness of the Regulation in allocating jurisdiction. The decision also relies on the concept of mutual trust between the courts of different jurisdictions. This is the idea that the courts of each Brussels regime state are equally qualified to determine whether the courts of another such state have jurisdiction. Although, technically speaking, anti-suit injunctions operate against the party in breach of the arbitration agreement, and so do not seek to control the foreign court, the ECJ nevertheless considered the relief to be an impermissible interference with this principle underpinning the Judgments Regulation. 5. IMPLICATIONS It is clear that English courts will now only have power to provide anti-suit relief where overseas proceedings are initiated in a state outside of the Brussels regime. In principle at least, arbitrations in England (or any other Brussels regime state) may have to be delayed or interrupted until proceedings in another state s courts have been stayed or jurisdiction has been declined, although, significantly, the possibility of parallel proceedings is not excluded. Depending on the relevant national procedural rules, getting to that stage could involve a complex assessment of the merits, as well as the possibility of appeals. These hurdles are likely to result in additional delays and costs, not to mention the unappealing prospect of being faced with unfamiliar processes and rules in foreign courts. The ECJ s ruling undermines the confidence parties can have that their commercial disputes within Europe will be dealt with only by the tribunal they expected and according to the procedural rules agreed between them. This is an obvious dent to the principle of party autonomy. Businesses undoubtedly prefer the certainty of knowing that litigation will take place in a pre-agreed forum and this is a common reason for selecting arbitration as the method for dispute resolution, for instance to avoid one party having home advantage. Further, the decision appears to ignore the serious commercial problem of wasted time and costs incurred in dealing with vexatious overseas proceedings. In addition, the ECJ s approach to the application and validity of arbitration agreements as an incidental matter, with priority given to potential secondary effects on overseas proceedings under the Judgments Regulation, suggests that there is now a greater risk of a party being able to circumvent the agreed arbitration process by initiating vexatious overseas proceedings. As a result, the practical appeal of forum shopping and strategically issued litigation within Europe may well be enhanced. In these circumstances, the non-availability of anti-suit relief will leave the other party and its lawyers with some difficult decisions about how to respond to best protect its interests. Whether the ruling means that parties are likely to move England down the menu of possible arbitration seats remains to be seen. However, the availability or otherwise of antisuit injunctions is not generally considered to be particularly influential in choosing the 14 See Allianz SpA v West Tankers Inc [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435 at [28] [30]. August 2009 337
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? arbitral seat. Greatest weight is typically placed upon factors such as the expertise of Londonbased counsel and arbitrators and the commercial importance of London in international trade. Moreover, other key venues for international arbitrations, such as Paris, Geneva and Stockholm, are popular notwithstanding the fact that anti-suit relief has never been available under those jurisdictions procedural rules. In any event, as the decision only affects cases where torpedo proceedings are commenced elsewhere in a Brussels regime state, the long range capabilities of the antisuit injunction are unchanged and relief will continue to be available against proceedings brought in breach of contract in other states, including Russia, China and the United States (an important fact confirmed by the recent decision of Cook J. in Shashou v Sharma 15 in relation to proceedings in India). Furthermore, given that arbitrations between parties from different Brussels regime states are considered to comprise a comparatively small proportion of London-based arbitrations, the overall impact of the decision on London as a centre for international dispute settlement should in any case be limited. 6. ANALYSIS The result in West Tankers was widely expected. In endorsing the Advocate General s Opinion, which had itself attracted much commentary, the decision reflects the culmination of the erosion of the firepower of anti-suit relief for European disputes developed in Turner and Gasser in favour of the non-discriminatory promotion of mutual trust between Brussels regime national courts. Indeed, against this background, it is surprising that the ECJ failed to provide a more reasoned explanation of its approach, including in respect of its implicit rejection of the forceful arguments made by A.G. Darmon in the Marc Rich case and relevant views presented in the reports of Professor Schlosser 16 and Mr Jenard. 17 Volumes of academic ink have already been spilt in analysing A.G. Kokott s Opinion and it is fair to assume that the ECJ s decision will be the subject of similar scrutiny. In particular, although the outcome of West Tankers is not surprising, the reasoning applied by the ECJ is open to challenge on a number of grounds and could have broader ramifications for international arbitration, including on the important issue of the interface between national courts and arbitration proceedings. First, the approach taken by the ECJ overlooks the persuasive case for giving prima facie priority to the forum expressly chosen by the parties (recognising that this of itself is not determinative for the purpose of jurisdiction under the Judgments Regulation following Van Uden ). By signing up to an arbitration agreement, the parties have elected to exclude the powers of the national courts of any jurisdiction to deal with disputes between them covered by their agreement. The Regulation recognises this by the exclusion of arbitration in art.1(2)(d). Therefore restraining foreign proceedings in these circumstances should not amount to a challenge to the Regulation because there is no jurisdiction to be allocated in the first place. Reintroducing the powers of national courts based on potential secondary effects risks seriously diluting the strength of arbitration as a private form of dispute resolution. Secondly, in characterising anti-suit injunctions in aid of arbitration as a preliminary or incidental question for the court first seised, the Judgments Regulation will engage whenever overseas proceedings could be within the Regulation s scope were it not for 15 Shashou v Sharma [2009] EWHC 957 (Comm) at [23] and [35] [39]. 16 Report on the Association of the Kingdom of Denmark, Ireland and the United Kingdom of England and Northern Ireland to the Convention on jurisdiction and judgments in civil and commercial matters and to the Protocol on its interpretation by the Court of Justice, signed at Luxembourg on October 9, 1978. 17 Report on the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters, signed at Brussels on September 27, 1968. The ECJ favoured the analysis put forward in the Evrigenis-Kerameus Report on the 1989 Accession Convention (see [26] of the decision). 338 August 2009
(2009) 75 ARBITRATION 3 the arbitration agreement to enable that court to review the validity and applicability of the agreement to arbitrate. It is difficult to see why a party seeking to commence foreign proceedings in apparent breach of an arbitration agreement should be afforded greater protection than a party simply arguing for enforcement of the agreed process for resolution of disputes. Presumably the parties intended that so-called preliminary issues such as the validity of an arbitration clause, which is effectively dealing with the issue of admissibility of the proceedings, would be decided by the courts of the arbitration seat using their supervisory powers. Furthermore, it is unclear where the limits of the ECJ s reasoning lie: are all proceedings that could affect Judgments Regulation proceedings at risk of review as a preliminary issue, notwithstanding the existence of a prior agreement to arbitrate? This is surely not the case, although a straightforward reading of the ECJ s decision does not exclude the possibility. Thirdly, the court failed to adequately address the question of why proceedings concerning the validity and application of an agreement to arbitrate should be beyond the Judgments Regulation s reach (on the basis that the essential subject matter is arbitration as established in Marc Rich), whereas a preliminary issue in relation to the very same matter falls within the Regulation s mechanism dealing with allocation of jurisdiction. The ECJ has previously recognised that a case may involve matters both within and outside of scope. 18 Such an analysis would seem to be appropriate here if the foreign court is seised of proceedings whose principal subject matter is within scope; it is not necessary for that same court to rule on the excluded matter and to do so on grounds of preserving the practical effectiveness of EU law or mutual trust is unsatisfactory in this context. On the other hand, if intervention is justified on the basis of some kind of derived jurisdiction arising out of the foreign proceedings, it was for the ECJ in West Tankers to explain this, yet it omitted to do so. Fourthly, the ECJ cited art.ii(3) of the New York Convention (NYC) 19 in support of its view that anti-suit relief disrupts the first seised court s jurisdiction to consider the validity of an arbitration agreement. This is unconvincing. The NYC requires that a court should give effect to an arbitration agreement unless the agreement is null and void, inoperative or incapable of being performed. 20 It will be extremely rare for the agreement to be of no legal effect, incapable of performance (for example, where the nominated arbitrator has died), or inoperative (for example, where the arbitration agreement has been revoked by the parties 21 ). The practical effect of this reflecting the well-established principle of competence-competence 22 is that it is for the arbitral tribunal to decide on the applicability and validity of the agreement to arbitrate. As a result, the foreign court will not have jurisdiction to hear proceedings that are in breach of an arbitration agreement and should refrain from hearing substantive arguments as to the arbitrators jurisdiction until the arbitral tribunal has itself had an opportunity to do so. This recognition of the priority of, and systematic referral to, the arbitral tribunal is therefore consistent with the international obligations arising from the NYC, which themselves take priority over the Judgments Regulation. 23 Applying this reasoning to West Tankers, the only matter that the 18 Hoffmann v Krieg (C-145/86) [1988] E.C.R. 645. 19 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 20 This concept is also reflected in UNCITRAL Model Law on International Commercial Arbitration art.8(1). 21 See Downing v Al Tameer Establishment [2002] EWCA Civ 721; [2002] 2 All E.R. (Comm) 545 where the Court of Appeal found that, on an objective construction of the correspondence between the parties, one party had repudiated not only the principal contract but also the arbitration agreement contained within that contract and that by commencing court proceedings the other party had unequivocally accepted that repudiation. 22 The general principle is recognised in the vast majority of countries including under French law, German law and English law (Arbitration Act 1996 ss.30 32) and in institutional rules such as LCIA art.23, ICC art.6 and UNCITRAL art.21. 23 See Judgments Regulation art.71(1). August 2009 339
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? Italian court needed to address itself to was whether an arbitration agreement existed in the case. On this basis, any anti-suit relief provided by the English courts could only interfere with the functioning of the NYC and not the Regulation; principles of mutual trust and practical effectiveness of EU law therefore fall away. In this respect, the ECJ s ruling seemingly fails to recognise international arbitration as an autonomous dispute resolution process separate from any national legal system. Finally, and perhaps most significantly, the doctrine of mutual trust underlying the West Tankers decision fails to acknowledge the significant differences between different civil procedure systems across Europe. Why should the English court trust that the foreign court, potentially applying its own national laws and procedural rules, will ultimately refer the matter to arbitration? For instance, the Italian civil procedure rules for summary dismissal are complex and the process entails a consideration of the merits of the case, even in circumstances where there is a challenge on jurisdiction. Accordingly, there is a risk, which cannot and should not be ignored, that the foreign court will not ultimately decline jurisdiction or impose a stay of the proceedings before it, or that it may lack the appropriate procedures to do so swiftly. In any event, it is not immediately apparent why the principle should inevitably entail giving super priority to the court first seised. For the reasons outlined above, it is strongly arguable that a more discriminatory application of the concept would recognise the significance of, and give priority to, the parties agreement to arbitrate, in harmony with the approach envisaged under the NYC. 7. RECENT CASE LAW A number of recent English cases provide helpful guidance in assessing future options for parties faced with breach of an arbitration agreement in Europe. These cases are outlined below and s.8 of this article presents the authors views on the primary options open to such a party, taking account of the recent judicial comments. CMA CGM SA v Hyundai Mipo Dockyard Co Ltd 24 CMA had previously started proceedings in tort against HMD in the Marseilles Commercial Court, arguing that HMD had unreasonably refused its consent to the novation of various shipbuilding contracts to CMA. The French court agreed and awarded significant damages against HMD. HMD subsequently counterclaimed against CMA in London arbitration proceedings relying on arbitration clauses in the relevant contracts. HMD contended that commencement and continuation of the French proceedings constituted a breach of the arbitration agreements entitling it to damages equivalent to the value of the French judgment made against it. The arbitral tribunal upheld HMD s claim, stating that arts 32 and 33 of the Judgments Regulation are not applicable to arbitral tribunals and accordingly it was not bound to recognise the earlier French judgment. HMD was therefore entitled to recover damages in respect of the sums payable to CMA under the French court s decision. CMA challenged the award under the 1996 Act s.69, arguing that the arbitral tribunal was bound by the earlier Regulation judgment of the French courts. Burton J. rejected the challenge and, although basing his decision on other grounds, 25 affirmed that the reference to a court or tribunal of a Member State in art.32 of the Regulation does not include an 24 CMA CGM SA v Hyundai Mipo Dockyard Co Ltd [2008] EWHC 2791 (Comm); [2009] 1 Lloyd s Rep. 213. The decision in West Tankers [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435 was still pending when this case was decided in the English Commercial Court. 25 HMD s case was advanced on the basis that, as CMA had breached the agreement to arbitrate disputes under the relevant contracts, CMA should not be allowed to benefit from its own wrong (relying on New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] A.C. 1) such that the critical question was what would have happened if the contract had not been breached. 340 August 2009
(2009) 75 ARBITRATION 3 arbitral tribunal and consequently such a tribunal is not required to recognise a Regulation judgment in the way that the English courts may otherwise be obliged to do so. Accordingly, English arbitration proceedings should continue notwithstanding the existence of parallel proceedings before the courts of another Brussels regime state and any judgment made in those other proceedings will not interfere with the tribunal s power to award damages against the defaulting party under the arbitration agreement. DHL GBS (UK) Ltd v Fallimento Finmatica SpA 26 Finmatica s receiver brought proceedings in Italy for unpaid invoices under a software supply agreement with DHL. The agreement was subject to English law and contained an English arbitration clause. DHL did not participate in the Italian proceedings and in its absence the Italian court held that it had jurisdiction to hear the case and that the receiver was not bound by the arbitration clause as a matter of Italian law. On a without notice application, Finmatica successfully applied to the English High Court to register the Italian judgment under the Judgments Regulation. DHL appealed on the basis that the judgment was outside the scope of the Regulation because it fell within the arbitration exception contained in art.1(2)(d) and that registration of the judgment was contrary to public policy because it was obtained in breach of a binding arbitration clause. DHL subsequently applied for a stay of its own appeal in relation to the registration proceedings pending its appeal of the original Italian judgment. In declining to grant the stay, Tomlinson J. noted in passing that, following the decision of the ECJ in West Tankers, it would be difficult for DHL to contend that the Italian judgment fell within the arbitration exception under the Judgments Regulation or that the English court could review the Italian court s decision as to its own jurisdiction and the applicability of the arbitration clause on grounds of public policy. To the extent that it was necessary or appropriate to consider such matters in the context of English public policy, the court would proceed on the assumption that the Italian court had correctly decided issues of Italian law. Tomlinson J. s narrow interpretation of the arbitration exception, meaning that an English court could not refuse to enforce a decision of a Brussels regime court notwithstanding the existence of a prima facie binding arbitration clause (and the limited scope for enquiry by the English court in these circumstances), corresponds with the ECJ s reasoning in West Tankers. National Navigation Co v Endesa Generacion SA, The Wadi Sudr The Wadi Sudr 27 is significant as the first detailed examination of the impact of West Tankers on alternative relief available before the English courts now that the possibility of antisuit injunctive relief has been excluded. While the facts and evolution of the case are relatively complex, in brief terms it was a shipping case involving proceedings in Spain and England where the relevant contract contained a London arbitration clause and was governed by English law. The Spanish court took jurisdiction in proceedings begun by Endesa and ruled that the arbitration agreement did not apply, in part because it had not been validly incorporated under Spanish law. NNC had commenced Commercial Court proceedings in England seeking a declaration of non-liability on the basis that the English courts had jurisdiction, however this part of the claim was ultimately struck out. 28 Shortly 26 DHL GBS (UK) Ltd v Fallimento Finmatica SpA [2009] EWHC 291 (Comm); [2009] 1 Lloyd s Rep. 430. 27 National Navigation Co v Endesa Generacion SA (The Wadi Sudr) [2009] EWHC 196 (Comm). 28 This application was made on the assumption that the contract contained an exclusive jurisdiction clause in favour of the English courts, which was shown to be incorrect. Accordingly, the court had no jurisdiction and this application was struck out with indemnity costs awarded against NNC. See further The Wadi Sudr [2009] EWHC 196 (Comm) at [63] [72]. August 2009 341
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? before the Spanish court gave its judgment on jurisdiction, NNC also issued an arbitration claim form applying for an anti-suit injunction and a declaration that disputes between the parties were referable to London arbitration and that the English court was not required to recognise the Spanish judgment. 29 The anti-suit application was dismissed following West Tankers; however Gloster J. granted the application for a declaration in the arbitration claim. In reaching this decision, she held that the Spanish court s judgment itself a Regulation judgment was not required to be recognised pursuant to art.33(1) of the Regulation on the grounds that NNC s arbitration proceedings before the High Court were not within the Regulation s scope by virtue of the arbitration exception in art.1(2)(d). Specifically, at [94] of the judgment, she said: [A]lthough the judgments of the Almería Court are Regulation judgments, they are not required to be recognised, pursuant to Article 33(1) of the Regulation, in proceedings in another Member State, which are not themselves proceedings within the Regulation, because, in the latter proceedings, the Regulation simply does not apply. As the Court of Appeal pointed out in Through Transport, at this stage (and before any separate proceedings to enforce a substantive judgment of the Almería Court on the merits of the case), such a decision is no more than a decision as to that Court s jurisdiction to entertain Endesa s Article 5(1) claim. Following this analysis, English court proceedings concerning the jurisdiction of an arbitral tribunal (for example as to the validity or applicability of an arbitration agreement) should therefore not be impeded by separate proceedings started in or an inconsistent judgment of another Brussels regime national court. This is a logical extension of the ECJ s approach in West Tankers: the jurisdictional issue in the foreign proceedings is within the scope of the Judgments Regulation only because it arises as a preliminary matter in those substantive proceedings which are themselves within the Regulation s reach. Conversely, English proceedings based on Arbitration Act 1996 s.32 have arbitration as their sole subject matter and so fall outside the scope of the Regulation under the specific exception, with no corresponding obligation on the English court either to stay its proceedings under the lis pendens provisions or to otherwise recognise a decision of the overseas court. On the question of whether the reasoning applied in West Tankers as to the incompatibility of an anti-suit injunction with the Regulation, notwithstanding that one set of proceedings is outside the Regulation, and the other within required an equivalent conclusion in respect of the relief sought by NNC, Gloster J. held at [97]: The granting of the declaration sought by NNC would not amount to any attempt by this Court to strip... [the Almería Court] of the power to rule on its own jurisdiction under [the] Regulation. Nor would it amount to an attempt by this Court to interfere with that Court s exclusive right to rule on its own jurisdiction pursuant to Articles 1(2)(d) and 5(1). The purpose of the declaration sought by NNC is not to prevent or impede the Almería Court from assuming, or deciding upon, its own jurisdiction. The latter (subject to NNC s outstanding appeal) has already done so... in my view, any declaration granted by this Court would not threaten or impede or otherwise obstruct any decision by the Spanish court as to its own jurisdiction. 29 On the basis that the courts have no general jurisdiction to intervene in arbitration proceedings under the 1996 Act, Gloster J. apparently considered that jurisdiction in the case before her existed under s.32, fn.56: I was told that the arbitrator has indicated that he will proceed with the arbitration hearing, in the event that there is a declaration from this court as to the existence of a binding arbitration agreement and that he was content that such an application should proceed before this court; accordingly no issue under section 32 of the Arbitration Act 1996 was raised before me. 342 August 2009
(2009) 75 ARBITRATION 3 Accordingly, in granting a declaration the English court would not be reviewing the jurisdiction of the Spanish court and therefore such relief would not offend the principles described in West Tankers. The court would only be deciding, consistent with its international obligations, whether there was a subsisting arbitration agreement between the parties. With some hesitation, Gloster J. also concluded that, unlike anti-suit injunctions, the grant of a declaration would not be something that would run counter to the mutual trust which member states accord to each other s legal systems: [T]here is a recognised difference between the approach of the common law and that of certain civil law jurisdictions to attempts to incorporate an arbitration clause into a contract. That difference of approach, however, should not deter a court that has jurisdiction, outside the system of allocation of court jurisdictions which the Regulation creates, to protect what it regards as the contractual right of a party to have its dispute determined by arbitration in that Member State... there can, in my judgment, be no assumption, in circumstances where different Member States have their separate and respective obligations under the New York Convention, that one Member State will be in a position to accept, or should, on grounds of comity, accept, the decision of the court of another Member State, as to the incorporation or validity of an arbitration clause, in circumstances where the latter may well have applied its own law to the question. In other words, the position in relation to a declaration which is not interfering with the exercise by another Member State of the exercise of a Regulation jurisdiction is different from that in relation to the grant of an anti-suit injunction. If she was wrong on the art.33(1) point, she further ruled 30 that it would in any event be manifestly contrary to public policy pursuant to art.34(1) of the Judgments Regulation to recognise the Spanish court s judgment concerning the non-incorporation of the arbitration agreement (amongst other matters) because of the relevant obligations under the NYC and the Arbitration Act 1996 s.9(4). 31 In so finding, she agreed with the decision of Waller J. in Philip Alexander Securities and Futures Ltd v Bamberger 32 that it would be contrary to English public policy to recognise a judgment obtained in breach of an arbitration agreement that was valid by its proper law. 33 It therefore followed that, pursuant to Civil Jurisdiction and Judgments Act 1982 s.32, the court was not bound by the Spanish decision in relation to those issues. 8. ALTERNATIVE STRATEGIES To minimise the immediate commercial impact of the West Tankers decision, parties will want to identify alternative litigation strategies to enforce existing arbitration agreements, as well as looking for possible deterrent tools to incorporate into their agreements in future. Litigation strategies The immediate objective will normally be defensive to obtain a determination (and so establish res judicata) on the jurisdictional issues prior to any decision in the foreign proceedings for use in resisting recognition and enforcement in England. Where time is particularly limited, an application to the courts under Arbitration Act 1996 s.32 following 30 See generally The Wadi Sudr [2009] EWHC 196 (Comm) at [98] [103]. 31 Arbitration Act 1996 s.9(4) provides: On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed. 32 Philip Alexander Securities & Futures Ltd v Bamberger [1996] C.L.C. 1757; [1997] I.L.Pr. 73 at [111] [114]. 33 Gloster J. noted in The Wadi Sudr [2009] EWHC 196 (Comm) at [100], the comments of Tomlinson J. in the DHL [2009] EWHC 291 (Comm); [2009] 1 Lloyd s Rep. 430 case. August 2009 343
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? appointment of the tribunal may be the preferred route 34 ; otherwise a partial award in arbitration and summary enforcement under s.66 will normally be the appropriate approach. Under either strategy, by the time that the arbitral tribunal has been appointed, the overseas action is likely to be advancing and the jurisdictional issues may already be live in those proceedings. Participate in the foreign proceedings The most obvious avenue to pursue is a challenge to the jurisdiction of the overseas court, requesting a stay of those proceedings on the basis of the arbitration agreement. This would be by reference to NYC art.(2)(3), which has been incorporated into the national laws of all Brussels regime states. Depending on the particular state s courts engaged (a heavy qualification, admittedly) this may ultimately be the most expedient approach. If a stay is successfully obtained, the main risks associated with satellite litigation will normally be assuaged and the party in breach should be liable for costs arising from its breach of the arbitration agreement. It may also be possible to combine this approach with a simultaneous application to the foreign court for a declaration on the validity of the arbitration agreement. Commence arbitration Notwithstanding the unattractiveness of parallel proceedings, as noted above it is still open to a party to commence the arbitration process in England and, indeed, it can be expected that this will often be the favoured approach. The arbitral tribunal is not obliged to stay its proceedings while the overseas court decides on its jurisdiction and it may be possible to obtain an award well in advance of a determination by that other court especially where the foreign proceedings involve an assessment of the merits and possible appeal processes. In principle at least, any award would then be enforceable under the NYC, albeit that there may be problems with enforcement in the country running parallel proceedings. Nevertheless, the comments of Tomlinson J. in the DHL case, to the effect that an English court could not refuse to enforce a Brussels regime court judgment rendered in apparent breach of an arbitration agreement, highlight the attraction of this strategy as a way to obtain an early determination at the arbitral seat. Of course, the claimant in the overseas proceedings may refuse to participate in the arbitration (or else apply to the arbitrators or the court for a stay of the arbitration proceedings), however such action should at least shift the main battleground back to the jurisdiction of the arbitral seat. The principal commercial issue with this approach is likely to be the substantial additional cost arising from involvement in multiple proceedings. The risks associated with inconsistent judgments may also mean that it is necessary to expedite the arbitration, thereby accelerating the rate at which costs will accumulate. Relief in the arbitration declaratory relief and damages It is uncertain following West Tankers how far an arbitral tribunal can legitimately resort to alternative procedural remedies to restrain foreign proceedings. For example, while there is no reason in principle why it should not be possible to seek a mandatory injunction against the recalcitrant party ordering it to proceed with arbitration, there has to be serious doubt as to whether this would be granted post-west Tankers. 34 The criteria in Arbitration Act 1996 s.32 must be met: the application must be by agreement of the parties or with the permission of the tribunal. In the latter case, certain additional criteria must also be fulfilled under s.32(2)(b), although the court is unlikely to scrutinise these matters in normal circumstances: see, e.g. the approach taken by Smith J. in Film Finance Inc v The Royal Bank of Scotland [2007] EWHC 195; [2007] 1 Lloyd s Rep. 382 at [3]. 344 August 2009
(2009) 75 ARBITRATION 3 A stronger contender as an appropriate pre-emptive move is an application for declaratory relief by way of partial award, for instance determining that the parties are bound by a valid arbitration agreement as endorsed in The Wadi Sudr. The declaration could then be used to lend support to an application for a stay in the overseas court and (or alternatively) in resisting recognition and enforcement of any unfavourable foreign judgment, including through summary enforcement under Arbitration Act 1996 s.66. Following Gloster J. s reasoning in The Wadi Sudr, any existing adverse judgment of the foreign court should not impede the granting of such relief. Depending on the overall merits, the innocent party may also request a declaration of non-liability on the causes of action advanced in the foreign proceedings; this will establish res judicata on those matters and help to resist any attempt at enforcement if the other party succeeds in those proceedings. 35 Furthermore, the tribunal may also give judgment on the issue of breach with damages to be assessed (and potentially ordering security to be provided in advance). 36 It is clear that damages are available for breach of an agreement to arbitrate 37 and there is no reason why the claim would not extend to cover legal costs potentially on an indemnity basis incurred in defending the overseas proceedings, in addition to the difference between the sum awarded in those proceedings and that which would have been awarded in arbitration. The analysis underlying Burton J. s comments in the CMA case, i.e. that an English arbitral tribunal is entitled to award damages for breach of an arbitration agreement even in circumstances where the judgment of the foreign court is enforceable under the Judgments Regulation, should endure post-west Tankers. The primary difficulty may be in enforcing any damages award in the overseas jurisdiction. In particular, while a final award of damages should be readily enforceable under the NYC, 38 the foreign court may be less than receptive where there is an earlier conflicting decision within the jurisdiction. Accordingly, it will normally be prudent to make an early assessment of the asset base of the recalcitrant party to determine the appropriate strategy, taking account of the overall prospects for recovery. In general terms, these strategies effectively place the litigationrisk on the party wrongfully persisting with proceedings in breach of the agreement to arbitrate, which may be at least as strong a deterrent as an anti-suit injunction. Moreover, as such strategies do not directly interfere with the foreign court s ability to exercise its jurisdiction on matters within the scope of the Judgments Regulation, they should not contravene the doctrines underpinning the ECJ s reasoning in West Tankers. Anti-suit relief It remains possible to request anti-suit relief from an English arbitral tribunal under the 1996 Act s.48(5)(a). 39 On the basis that the tribunal operates outside of the Judgments Regulation 35 Although it should be borne in mind that claims for such negative declarations are generally treated with caution by the English courts as they have obvious appeal to forum shoppers. Nevertheless, there is no reason in principle why such relief should not be granted if the merits of the case warrant it. 36 In this respect, a declaration of non-liability may arguably be necessary to assert a party s right to damages based on the other party s breach of the agreement to arbitrate. 37 Doleman v Ossett Corp [1912] 3 K.B. 257 at 267 per Fletcher Moulton L.J. and Mantovani v Carapelli SpA [1978] 2 Lloyd s Rep. 63 at 73 per Donaldson J. 38 The public policy exception under NYC art.v2(b) is narrow and should not prevent enforcement on grounds of a previous inconsistent local judgment. See, e.g. Deutsche Schachtbau-und Tiefbohrgesellschaft MBH v Ras Al Khaimah National Oil Co [1987] 2 Lloyd s Rep. 246 at 254 and Westacre Investment Inc v Jugoimport-SPDR Ltd [1999] Q.B. 740 at 757 (affirmed by the Court of Appeal [2000] 1 QB 288). 39 1996 Act s.48(5)(a) provides that, [t]he tribunal has the same powers as the court... to order a party to do or refrain from doing anything. August 2009 345
AFTER WEST TANKERS RISE OF THE FOREIGN TORPEDO? and so is not required to comply with or otherwise uphold principles such as mutual trust between Brussels regime national courts (consistent with the reasoning in the CMA case), 40 arbitrators should not be precluded from granting injunctive relief in accordance with the general power of the English courts. 41 Although it is questionable how valuable anti-suit relief would actually be in circumstances where the overseas proceedings have already started and the threat of the usual sanctions of a fine or imprisonment for non-compliance are not available, it may be nevertheless a useful tactical tool in support of a challenge to the foreign court s jurisdiction or in resisting enforcement of an unfavourable decision overseas. Moreover, if the defaulting party still refuses to discontinue the foreign action, it will be open to the tribunal to issue a peremptory order (usually in the form of an unless order) under the 1996 Act s.41(5). 42 Such an order could also be supported by an application to the English court under s.42 for an order enforcing the peremptory order, with the usual sanction of penalties for contempt of court. 43 While the position is unclear, in practice it may be that West Tankers has left an insurmountable hurdle to obtaining relief under s.42 in the face of proceedings before a Brussels regime national court. Similarly, if the overseas courts are not yet seised of the matter and assuming that the requisite grounds can be made out, arguably it may be possible to seek injunctive relief from the English courts under the Supreme Court Act 1981 s.37 and the 1996 Act s.44, although again this approach sits uncomfortably alongside the ECJ s analysis in West Tankers. 44 Deterrent mechanisms Clear drafting of the arbitration agreement to avoid any uncertainty as to its validity or applicability should continue to be a primary focus. In addition, parties may be inclined to negotiate harder for the inclusion of terms providing for irrevocable waiver of any objection to, amongst other matters, the arbitration proceeding in default of appearance and rights to challenge jurisdiction on grounds of inconvenience or inappropriateness of forum. After West Tankers, however, parties may also seek to reinforce their agreements with other targeted provisions to maximise the probability that an overseas court will restrict its control (for instance, to a simple verification that the arbitration agreement exists) and to minimise the appeal to an obstructionist party of instigating overseas proceedings. For example, on a basic level, the arbitration agreement could record the parties agreement to submit to the English courts for injunctive relief in circumstances where there is any alleged breach of the arbitration agreement. Similarly, the parties could make express provision for the arbitrators to have power to grant anti-suit relief and could also agree that any decision or award rendered in breach of the arbitration agreement will be unenforceable. Such 40 English arbitral tribunals are not tribunals of a member state within Judgments Regulation arts 32 and 1. Accordingly, not only are they not required to recognise judgments of such institutions (i.e. member state national courts), they are also not constrained by specific limitations on the procedural powers of the English courts arising from obligations under the Judgments Regulation. 41 The recent decision in Shashou [2009] EWHC 957 (Comm) confirms that this general power has not been removed by the West Tankers [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435 decision. 42 Under 1996 Act s.41(7), if a party fails to comply with a peremptory order, the tribunal has a number of options available to it, including making such order as it thinks fit as to the payment of costs of the arbitration incurred in consequence of the non-compliance. 43 For a recent example, see Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm); [2009] 1 Lloyd s Rep. 233. 44 West Tankers [2009] All E.R. (EC) 491; [2009] 1 All E.R. (Comm) 435 at [34] the ECJ stated, it is incompatible...for a court of a Member State to make an order to restrain a person from commencing or continuing proceedings (emphasis added). 346 August 2009