Volume 24 Number

The Journal of the London Court of International Arbitration The ECJ Reference in The Front Comor: Much Ado About Nothing? Claude Kesseler and James Hope Volume 24 Number 2 2008 ISSN 0957 0411

MISSION STATEMENT A forum for the rigorous examination of the international arbitral process, whether public or private; to publish not information or news, but contributions to a deeper understanding of the subject. Editorial Board GENERAL EDITOR Professor William W. Park EDITORS Professor Anthony G. Guest, CBE, QC Professor Dr Klaus Peter Berger Nigel Blackaby Richard Kreindler Professor Loukas Mistelis Salim Moollan Karyl Nairn Professor D. Rhidian Thomas Thomas W. Walsh SPECIAL ISSUES EDITOR V.V. Veeder, QC Kluwer Law International 250 Waterloo Road London SE1 8RD United Kingdom www.kluwerlaw.com LCIA 70 Fleet Street London EC4Y 1EU telephone: +44 (0207) 936 7007 fax: +44 (0207) 936 7008 e-mail: lcia@lcia.org www.lcia.org Please address all editorial correspondence (including submission of articles) to: Kathryn Arnot Drummond The Assistant to the Editorial Board Arbitration International e-mail: submissions@arbitrationinternational.info Where e-mail cannot be used, please address any correspondence to: The Assistant to the Editorial Board Arbitration International c/o K. Arnot Drummond LCIA 70 Fleet Street London EC4Y 1EU

The ECJ Reference in The Front Comor: Much Ado About Nothing? The ECJ Reference in The Front Comor: Much Ado About Nothing? by CLAUDE KESSELER and JAMES HOPE* Arbitration Arbitration International, William W. 2008 International ParkVolume 24 Issue 2 Note EVER SINCE the ECJ s infamous Gasser 1 and Turner 2 decisions, in which the ECJ held anti-suit injunctions in aid of exclusive jurisdiction clauses to be incompatible with EC Regulation 44/2001, 3 emotions have been running high amongst antisuit injunction supporters. Referring to the Brussels regime as a pitiless Stalinistic monoculture, 4 Professor Adrian Briggs notes: It is well-known that many continental lawyers have a peculiar hostility to the anti-suit injunction. As an antidote to jurisdictional shenanigans its usefulness is second to none, but its roots did not lie in civilian legal systems. So, it had to go as the dullardism of the lowest denominator asserted itself. In its place, we are to repose trust in the other states legal system and judicial institutions. 5 Unsurprisingly, therefore, the ECJ referral by the House of Lords in The Front Comor 6, which could result in an extension of the Gasser/Turner ratio to antisuit injunctions issued in aid of arbitration, has caught the attention of the English legal community. * Claude Kesseler is an associate at Skadden, Arps, Slate, Meagher & Flom LLP in Los Angeles. James Hope is a consultant at Advokatfirman Vinge KB in Stockholm. Both are practising English solicitors, and former colleagues at Skadden, Arps, Slate, Meagher & Flom (UK) LLP in London. The views expressed are those of Ms Kesseler and Mr Hope and do not represent advice given by either Skadden, Arps or Vinge. 1 Erich Gasser GmbH v. MISAT Srl (Case C-116/02) [2003] ECR I-14693. 2 Turner v. Grovit (Case C-159/02) [2004] ECR I-3565. 3 Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Subject to certain exceptions, this Regulation regulates matters of court jurisdiction and the recognition and enforcement of court judgments in civil and commercial matters within the European Union. 4 Adrian Briggs The Impact of Recent Judgments of the European Court on English Procedural Law and Practice in (2005) II 124 Zeitschrift fur Schweizerisches Recht 231; University of Oxford Faculty of Law Legal Studies Research Paper Series (Working Paper 11/2006, April 2006), p. 22. 5 Adrian Briggs Anti-Suit Injunctions and Utopian Ideals in (2004) 120 LQR 529 at p. 530. 6 West Tankers Inc. v. RAS Riunione Adriatica di Sicurta Spa and others (The Front Comor) [2007] UKHL 4, [2007] All ER (D) 249 (Feb.). ARBITRATION INTERNATIONAL, Vol. 24, No. 2 LCIA, 2008 331

332 Arbitration International, Volume 24 Issue 2 The current English law position is set out in the Court of Appeal s decision in Through Transport, 7 which held that the English courts ability to grant antisuit injunctions in aid of arbitration proceedings has not been diminished as a result of the decisions in Gasser and Turner. The Court of Appeal held in that case that, by virtue of Article 2(d) of the Regulation, it was apparent that the Regulation did not apply to arbitration. The Court of Appeal s reasoning was applied by Colman J at first instance in The Front Comor, 8 in which he granted an injunction restraining the subrogated insurers of a damaged jetty from pursuing Italian proceedings against the owners of a vessel, the Front Comor, in breach of an English arbitration agreement. In so doing, both decisions effectively followed Millet LJ s reasoning in the comparatively old case of The Angelic Grace, 9 thereby brushing aside the concerns for legal certainty and mutual trust that had later been expressed by the ECJ in Gasser and Turner. Moreover, on the question of the scope of the arbitration exception, both the Court of Appeal in Through Transport and Colman J in The Front Comor failed to refer to the most relevant authority in this context, the Van Uden 10 case, in which the ECJ interpreted the so-called arbitration exception under the Brussels Convention 11 narrowly, holding that provisional or protective measures in support of arbitration do not fall within the scope of the arbitration exception. It is therefore perfectly possible that the ECJ, in its upcoming ruling in The Front Comor, will also interpret the same arbitration exception under the Regulation narrowly so that the decision whether there is a binding agreement to arbitrate will no longer fall outside the European system and will be for the court first seised to make under Articles 27 and 28 of the Regulation. Not only is there academic writing to support this conclusion, 12 but the House of Lords itself considered the question to be sufficiently not obvious 13 to seek guidance from the ECJ. This explains why the ECJ ruling, and its likely ban on antisuit injunctions in aid of arbitration, is anticipated with much trepidation by some in the English legal community. Gloomy predictions abound: City could lose out under ECJ arbitration ruling: Parties may desert London for US or Switzerland reads a headline in the Legal Gazette. 14 The Law Lords in The Front Comor express a similar concern, fearing that such a ban would affect the choice of venue and efficacy of international arbitration generally, with London likely to lose out to other 7 Through Transport Mutual Insurance Association (Eurasia) Ltd v. New India Assurance Co. Ltd [2005] 1 Lloyd s Rep. 67. 8 [2005] EWHC 454 (Comm.). 9 [1995] 1 Lloyd s Rep. 87. 10 Van Uden Maritime BV v. Deco-Line (Case C-391/95) [1998] ECR I-7091. 11 Brussels Convention of 27 September 1968 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the predecessor of EC Regulation 44/2001). 12 See observations made by Briggs, supra n. 4 at pp. 16 18, although Prof. Briggs concludes that the result is an outcome which cannot rationally be defended. See also the list of academic writings on both sides of the debate, in the note to para. 27 of Lord Mance s speech in the House of Lords in The Front Comor, supra n. 6. 13 See The Front Comor, supra n. 6, para. 1 of Lord Hoffmann s speech, with which the other four Law Lords agreed. 14 1 March 2007, p. 6.

The ECJ Reference in The Front Comor: Much Ado About Nothing? 333 arbitrations venues (in particular, New York, Bermuda and Singapore), all of which grant antisuit injunctions. 15 The present authors consider these fears, if not entirely misplaced, nevertheless to be grossly exaggerated. First, such fears overestimate the impact of antisuit injunctions on the choice of the arbitration venue. While their availability can be a factor, it rarely is a deciding one, as illustrated by the pre-eminence of Paris, Geneva and Stockholm (where the local courts rarely, if ever, issue antisuit injunctions) as arbitration venues. Secondly, antisuit injunctions are generally sought, not at the seat of arbitration, but in the jurisdiction where the party breaching the arbitration agreement is domiciled or has assets. 16 Thus, where Party A (domiciled in Cyprus) and Party B (domiciled in the British Virgin Islands) have agreed to arbitration in London and Party B then starts proceedings in Italy in breach of the arbitration agreement, Party A would be best advised to seek an antisuit injunction against Party B in the British Virgin Islands, where such an injunction can readily be enforced against Party B. Even if the English courts, as the supervisory courts at the seat of arbitration, also have jurisdiction (subject to whatever the ECJ decides in The Front Comor) to grant antisuit relief in such circumstances, the difficulty of enforcing such relief overseas may make it undesirable to turn to the English courts. 17 Thirdly, whatever the outcome of The Front Comor, it will not affect the jurisdiction of the English courts to grant antisuit injunctions in those cases (likely the majority) which fall outside the geographical ambit of the EC Regulation regime. To take the example given above, the Regulation might arguably be applicable where the proceedings in breach of the arbitration agreement were brought in Italy, but if instead the proceedings were brought in Russia the Regulation regime would be unaffected, since a Russian court is not a court of an EU Member State and would not, on any view, be a court first seised within the meaning of the Regulation. It is indeed likely to be when such proceedings are brought in courts outside the European Union that antisuit relief is needed most, for example, where there are concerns that the breaching party is likely to be able to influence the court s judgment. 18 Fourthly, even in those cases that are affected by the decision in The Front Comor, arbitral tribunals sitting in England, as opposed to the English courts, will in many cases still have the power to grant antisuit injunctions. 19 A party is 15 See The Front Comor, supra n. 6, Lord Mance s speech at para. 28 and Lord Hoffmann s speech at paras. 17 21. 16 See Paul Mitchard, Anti-suit Relief: an Imperfect World in (2007) 2(2) Global Arbitration Review. 17 The English court may in fact refuse to exercise its jurisdiction in such circumstances; see e.g., Société Nationale Industrielle v. Lee Kui Jak [1987] AC 871 (PC) at 892E: an injunction will only be issued restraining a party who is amenable to the jurisdiction of the court, against whom an injunction will be an effective remedy. 18 The ECJ s reasoning in Gasser and Turner is that, within the European Union, courts of Member States should trust each other. It is certainly to be hoped that the courts of all Member States can be trusted, and it is regrettable that lawyers (possibly in particular English lawyers) are sometimes unduly nationalistic in their preference for their own legal system. Nevertheless, there is clearly some work to be done before litigants of one Member State can feel comfortable before the courts of another Member State. 19 The arguments in Turner, Gasser and The Front Comor concern only the powers and obligations of the courts, not those of arbitral tribunals.

334 Arbitration International, Volume 24 Issue 2 usually ill-advised to act in breach of an order from sitting arbitrators for fear of the impact that such behaviour may have upon the tribunal s perception of the merits of the case. 20 Sections 38(1) and 48(1) of the Arbitration Act 1996 provide that the parties are free to agree on the powers exercisable by the arbitral tribunal, both on an interlocutory basis and as regards remedies, 21 and institutional rules 22 commonly give the tribunal a general power to order injunctive relief. 23 It may also be sensible for parties to consider including express provision in their arbitration agreements giving the arbitral tribunal wide powers to grant injunctions. Finally, antisuit injunctions tend to be very expensive weapons, and yet despite the considerable cost the applicant can have no certainty that the English court will exercise its discretion in its favour. 24 Thus, although English litigators would understandably hate to be deprived of one of the weapons in their armoury, in practice their clients may not be overly concerned. In fact, in the intra-eu context, it will often be far cheaper and easier for the complaining party (Party A in our example) to make the appropriate application to the court in the other Member State before which the offending proceedings have been brought, asking that court to decline jurisdiction. Despite the fears that may be expressed to the contrary, the courts of other Member States can generally be expected to honour their obligations under the New York Convention and thus decline jurisdiction where the subject matter in question falls within the scope of a valid and binding arbitration agreement. 25 The present authors also consider that the ultimate result in The Front Comor before the ECJ may not, in fact, be so much of a foregone conclusion as the scaremongers in England have suggested. Unlike some previous judgments of the English courts on this issue which have tended to take a rather parochial approach, Lord Hoffmann s speech in the House of Lords demonstrates a commendably European approach to the problem, quoting from articles written in both German and French, and he provides some powerful EU law arguments against an 20 See Mitchard, supra n. 15. 21 The Departmental Advisory Committee intended s. 48 to be of wide ambit. The Committee stated in its commentary on the July 1995 draft Bill: The clause contemplates the possibility that the parties may in the arbitration agreement confer upon the tribunal different, and possibly greater, powers than those available to the court. Parties may wish to confer the power on a tribunal to order a particular composite remedy, or a remedy on different grounds from those used by the High Court, or a different remedy that is ordinarily available in another jurisdiction. 22 See e.g., art. 23(1) of the ICC Rules, which states the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate. The LCIA Rules, on the other hand, are drafted in rather narrower terms. 23 Where the parties have not agreed on the tribunal s powers as regards remedies, Arbitration Act 1996, s. 48(5) provides, inter alia, that the tribunal has the same powers as the court to order a party to do or refrain from doing anything in other words, to grant an injunction. However, given this wording, it would appear that a tribunal s power to grant antisuit injunctions by virtue of this provision will be curtailed in the event that the court s powers are curtailed by the ECJ. 24 See e.g., Through Transport, supra n. 7, in which the Court of Appeal, having set out lengthy reasoning for its view that the court had the power to grant an antisuit injunction, nevertheless decided that it was not just and convenient in the circumstances for the injunction to be granted. 25 Indeed, under the civil procedure rules of some Member States, such a case would be dismissed by the court of its own motion.

The ECJ Reference in The Front Comor: Much Ado About Nothing? 335 extension of the reasoning in Gasser and Turner that could find favour with the ECJ. 26 Unlike the Court of Appeal in Through Transport, Lord Hoffmann does refer to the Van Uden case (mentioned above), arguing that it would in fact be consistent with Van Uden for antisuit injunction proceedings in relation to arbitration agreements to fall squarely within the arbitration exception under the EC Regulation, thus creating a clear distinction between arbitration agreements and exclusive jurisdiction clauses for these purposes. Lord Hoffmann also points out that an extension of the reasoning in Gasser and Turner would affect the other exceptions concerning matrimonial property and insolvency under the Regulation. 27 It remains to be seen whether the ECJ in The Front Comor will extend the ratio of the Gasser and Turner cases to antisuit injunctions issued in aid of arbitration. Meanwhile, English litigators have little to fear. 26 The Front Comor, supra n. 6, Lord Hoffman s speech, in particular at paras. 12 16. 27 Regulation 44/2001, Art. 1(2)(a) and (b). The same argument would apply to Art. 1(2)(c) concerning social security.