Sun, 05 Jul 2015
Tim Jones reports on the continuing West Tankers saga. Article written for and published by European Advocate, Spring 2015 Edition.
The injustice of delay is a “long standing principle of the common law” (Moore v SSCLG  EWHC44 (Admin)), at least from Magna Carta’s “… we will not… defer… Justice or Right”. ECHRs’ Art6(1) begins “In the determination of his civil rights and obligations… everyone is entitled to a… hearing within a reasonable time…” The ECJ’s West Tankers judgment seems to depart from this.
Anti-suit injunctions are a long-established procedure that prevents a party from delaying or preventing final decisions through a foreign “torpedo” action. These injunctions were useful where a defendant used proceedings in a jurisdiction where cases where not dealt with promptly to prevent arbitration. The ECJ’s decision in West Tankers limited the use of these injunctions in a case where they could have prevented inordinate delay. Since justice delayed is justice denied, this was regrettable. However its consequences may not be as extensive as they first seemed.
WT owned a ship and chartered it to Erg. The charter-party contained an arbitration agreement providing that disputes were to be dealt with by an arbitral body in London and that English law applied. In 2000 the ship collided with Erg’s Syracuse jetty and was damaged. Erg claimed compensation from its insurers up to its cover’s limit and commenced London arbitration against WT for the excess. WT counterclaimed that it was not liable. The pleadings were completed. In 2003 the insurer issued proceedings in tort against WT before the Tribunale di Siracusa. These sought the amount it had paid Erg. WT raised an objection of lack of jurisdiction.
The issues on liability were substantially the same in the Tribunale and arbitration. The main question was whether WT could rely on an exclusion from liability. In 2004 WT commenced High Court proceedings against the insurers, claiming declarations that the Italian dispute arose out of a contract that contained an arbitration clause and that the insurers were bound to refer it to arbitration. It also claimed an injunction restraining the insurers from taking steps other than by arbitration and to discontinue the Tribunale proceedings. The High Court granted the applications.
When West Tankers was being considered Regulation 44/2001 (“Brussels I”) applied. Its provisions included: “The Regulation shall not apply to… arbitration” [Art1(2)(d)] And “A person domiciled in a Member State may, in another Member State, be sued… in matters relating to tort… in the courts… where the harmful event occurred…” [Art5(3)].
The UK litigation reached the Lords. Their Lordships, while confirming the practice of granting anti-suit injunctions, in 2007 referred the following to the ECJ: “Is it consistent with… 44/2001 for a court of a member state to make an order to restrain a person from commencing or continuing proceedings in another member state on the ground that such proceedings are in breach of an arbitration agreement?” Before doing so they held: Brussels I, because of Art1(2)(d), excluded arbitration; Van Uden stated that arbitration is the subject matter of proceedings where they serve to protect the right to determine the dispute by arbitration; the basis upon which Brussels I allocated jurisdiction was unsuited to arbitration. An adverse ruling might harm the practice of granting anti-suit injunctions. Their Lordships emphasised the freedom of parties to an arbitration agreement to regulate their affairs by utilising arbitration’s privacy, informality and finality and choosing the seat. The EU is engaged in competing with the world, as well as in regulating commerce between Members. Should Member States become unable to offer an arbitration seat capable of making orders restraining parties from acting in breach of agreements, non-EU leading arbitration centres might benefit. A “yes answer would advantage the EU.
The ECJ differed. In 2009 it answered “no”. In order to determine whether a dispute fell within Brussels I, reference had solely to be made to the proceedings’ subject matter. The fact that arbitration had been chosen was not determinative. The injunction proceedings would have been outside Brussels I, but for the fact that they conflicted with a Member’s jurisdiction by preventing its court from exercising jurisdiction. Since the rights to be protected in the Tribunale fell within Brussels I, a preliminary issue concerning the applicability of an arbitration agreement also came within it. It was exclusively for the Tribunale to determine that.
The ECJ cited previous case law where it held “Even if the proceedings to determine jurisdiction before the court first seised were very protracted and might have been brought there only in order to delay proceedings, the Court of Justice refused to make exceptions…” 6’s “within a reasonable time”, despite the fact that in Syracuse a preliminary issue that was not complex had still not been resolved.
The power to grant anti-suit injunctions remained to Members’ courts that previously had them in respect of proceedings circumventing arbitration clauses commenced in non-EU courts, or where a party was not EU domiciled. The judgment meant that, where Brussels I applied, torpedo actions could delay arbitration.
However the judgment did not impact on the arbitration. The award declared WT not responsible for the collision. Despite this, WT feared that the insurers might obtain a conflicting Italian judgment and seek to enforce this in Britain. To prevent this, WT relied on Brussels I Art34(3) forbidding recognition of a judgment in another EU State in the same matter. WT’s application succeeded and it was given leave to enforce the award under Arbitration Act 1996 s66. The insurers applied unsuccessfully to set aside. The court held that s66’s purpose is to give effect to the successful party’s objective to establish an award’s primacy over an inconsistent judgment. The Court of Appeal dismissed the insurers’ appeal. WT avoided liability towards the insurer, achieving what it would have achieved if an injunction had been granted. The costs were high and it was only able to do this once an award had been made. Nonetheless the fact that courts are prepared to support the primacy of English arbitration awards should assist where prolonged litigation is commenced in another Member State.
There was a final English judgment in 2012. At that stage the Tribunale had not determined the jurisdiction issue.
The ECJ’s judgment was criticised for its potential for injustice and for lacking commercial realism. The Commission, in its impact assessment accompanying the recasting, noted the criticism that West Tankers allowed parties acting in bad faith to escape their obligation to submit to arbitration. In 2010 it published proposals for recasting Brussels I.
The recast regulation is 1215/2012 (“Brussels I Recast”). It goes some way to restoring arbitration’s primacy. Its Preamble mentions arbitration, providing that the Regulation should not apply to arbitration and that nothing should prevent courts from referring the parties to arbitration. There is specific reference to the New York Convention:
“This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation…
…where a court of a Member State… has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not preclude that court’s judgment on the substance of the matter from being recognised or… enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts… to decide on the recognition and enforcement of arbitral awards in accordance with the… New York Convention… which takes precedence over this Regulation.
This Regulation should not apply to any action or ancillary proceedings relating to… the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.”
A new Art73(2) provides the “Regulation shall not affect the application of the” NYC.
The use of a recital left uncertainty. Recitals are an aid to interpretation and this may include the interpretation of the scope of arbitration in Art1(2)(d), given a narrow meaning by the ECJ in its judgment. However recitals do not justify derogation from substantive provisions.
Its first sentence does not add to Art. 1(2)(d). Its second sentence makes clear the Regulation does not prevent reference to arbitration. The second paragraph seems contrary to the ECJ’s judgment. It probably means that the question whether a decision of a court in one Member State binds that in another will be decided by the principles of res judicata and issue estoppel. The third paragraph allows recognition of the court’s judgment on the substance. The fourth paragraph provides an argument that injunctions in support of arbitration are allowed.
The recital’s overall effect is to weaken torpedo actions, but to fail to deal with parallel proceedings. There is a risk of divergent decisions.
The ECJ’s Gazprom judgment relates to an anti-suit award issued by a Swedish arbitral tribunal prohibiting initiation of proceedings in Lithuania and to Brussels I. A-G Wathelet’s opinion foreshadowed a limitation of West Tankers. Its pro-arbitration approach is apparent from its second paragraph:
“…the Court decided… to entrust it to the Grand Chamber. This should enable the Court to define and clarify the relationship between EU law and international arbitration, whose 'fundamental importance ... within the "international business community"' - having 'become the "most frequently used method of resolving disputes in international trade"' - had already been recognised…”
In 2012, the arbitral tribunal made a final award that determined that Lithuanian court proceedings breached an arbitration agreement contained in a shareholders' agreement and ordered the Ministry who instituted the proceedings to withdraw some of the submitted requests and to reformulate another request. The Ministry brought proceedings that averred that the anti-suit award was an anti-suit injunction contrary to West Tankers. The Lithuanian referring court accepted this.
A-G Wathelet recognised that like the anti-suit injunction in West Tankers “the arbitral award is capable… of undermining… Brussels I”. However the recognition and enforcement of arbitral awards, such as the award at issue, should be subject, not to Brussels I, but to NYC. The EU legislature intended to correct the boundary between the application of Brussels I and arbitration. Under Brussels I Recast the West Tankers injunction would not have been incompatible with EU law. Recasting Brussels I reinstated the interpretation given to the exclusion of arbitration from the scope of the Regulation by Rich, according to which “the Contracting Parties intended to exclude arbitration in its entirety”. Consequently, Brussels I was not applicable to the Gazprom dispute. “Clarification of the exclusion of arbitration in the Brussels I Regulation (recast) is part of an effort to combat the delaying tactics of parties who, in breach of their contractual undertakings, initiate proceedings before a court… which manifestly lacks jurisdiction…” He also gave an alternative view that West Tankers cannot be applied to anti-suit awards issued by arbitrators whose recognition and enforcement fall within NYC, but should be limited to where the injunction is issued by a Member State’s court against proceedings pending before of another Member State’s court.
The ECJ’s judgment was narrower, did not consider 1215/2012 and did not overrule (in a Brussels I case) West Tankers. Rather it limited itself to concluding:
“… Regulation No 44/2001 must be interpreted as not precluding a court of a Member State from recognising and enforcing, or from refusing to recognise and enforce, an arbitral award prohibiting a party from bringing certain claims before a court of that Member State, since that regulation does not govern the recognition and enforcement, in a Member State, of an arbitral award issued by an arbitral tribunal in another Member State.”
How far Brussels I Recast will limit West Tankers remains to be determined.
Written by Tim Jones. Tim Jones is a member of No5 Chambers' International Arbitration Group and a Fellow of the Chartered Institute of Arbitrators, having reached fellowship level in both UK and International arbitration.
This article is based upon a paper delivered at the Bulgarian Chamber of Commerce and Industry.