United States: West Tankers 2012: Pro-Arbitration Through Enforcement Of Declaratory Awards

This article was originally published in International Arbitration Law Review, Issue 2, 2012

Introduction

West Tankers' decisions are to arbitration practitioners what JK Rowling novels are to Harry Potter fans: each brings the reader a new insight into their otherwise ordinary world. Readers will recall the 2009 European Court of Justice (ECJ) decision in West Tankers which brought into question the availability and use of anti-suit injunctions (in the European Union) in order to enforce arbitration agreements.¹ The most recent "episode" in West Tankers concerns a 2012 English Court of Appeal judgment on whether an arbitral award in the form of a negative declaration may be entered as a judgment under the terms of s.66 of the Arbitration Act 1996 (the Act); the intention being that it may circumvent some of the difficulties posed by the ECJ decision in West Tankers 2009, while adhering to the current position under the Brussels Regulation 44/2001 (the Brussels Regulations).² This paper will look at West Tankers generally, the nature of declaratory awards and, in particular, the most recent development in the English court. While there is no magic regarding the English court's 2012 decision, its effect may serve as a useful tool in the arsenal of arbitration practitioners while the proposed amendments to the Brussels Regulations continue to be deliberated.

Background: West Tankers 2009

The ECJ decision in West Tankers 2009 is well-known to most arbitration practitioners (especially those with UK connections) and the facts need not be repeated in detail.³ However, the legal issues serve as a useful backdrop against which the tactics and rationale deployed in West Tankers 2012 can be better understood.

The House of Lords, when referring the matter to the ECJ, expressed their support for the English anti-injunction previously issued. This was for two principle reasons. First, that arbitration is excluded from the scope of the Brussels Regulations by art.1(2)(d), which states that "the Regulation shall not apply to ... arbitration", a position that has been held, by the ECJ itself, to extend to court proceedings in which the subject matter is arbitration.⁴ Secondly, and more fundamentally, the nature of the Brussels Regulations were intrinsically unsuited to dealing with arbitration agreements, where the parties had by definition chosen to apply different principles to the allocation of jurisdiction.⁵

The ECJ's approach was that while the application for an anti-suit injunction was to enforce an arbitration agreement, and therefore did not come within the scope of the Brussels Regulations, there was concern that they undermined the effectiveness of the Brussels Regulations.⁶ The ECJ held that the injunction granted by the English courts "runs counter to the trust which the Member States [must] accord to one another's legal system and judicial institutions".⁷ The ECJ also had regard to art.II(3) of the New York Convention which states the courts of a contracting state:

Fundamentally, the ECJ took the view that an EU court's jurisdiction, including the validity or otherwise of an arbitration agreement, is necessarily an incidental and preliminary question to the substantive dispute. To remove the court's power to address that "amounts to stripping that court of the power to rule on its own jurisdiction under Regulation No 44/2001"; a jurisdiction which is not, or should not be, subject to review by the courts of another Member State.⁹ The ECJ continued in that if an arbitral tribunal was prevented from examining itself the preliminary of the validity or the applicability of the arbitration agreement, a party could avoid the proceedings—which would otherwise be provided for under the Brussels Regulations—merely by relying on that agreement. The effect being that the applicant, who considers that the agreement is void or inoperative, would be barred from access to the court and therefore be deprived of a form of judicial protection to which it is entitled."¹⁰

The ECJ's decision effectively left (primarily English) arbitration practitioners to reconsider how best to uphold and enforce arbitration agreements in the European Union when their magic wand, namely the anti-suit injunction, was taken from them. In the period following West Tankers 2009, many academics theorised about ways to maneuver around West Tankers 2009. Principal among these was the use of declarations, but that spell was yet to be cast in the confines of a court room.

Declaratory awards in arbitration

Declaratory awards are nothing new to international commercial arbitration. The circumstances and terms of such an award are generally at the discretion of the arbitral tribunal, subject to the terms of the arbitration agreement.¹¹ Such awards decide questions as to the respective rights and obligations of the parties; they are not "executory" in form in that they do not formally order either party to do or to refrain from doing anything.¹² Turner notes that declaratory awards may be issued in disputes on, for example:

1. the meaning or interpretation of a term of a contract, or specification, or other document;

2. whether or not a particular event or circumstance falls within a contractual definition

3. whether or not the terms of a contract have been complied with;

4. whether one event was the direct consequence of another.¹³

In the context of arbitration disputes, some of the more common declaratory awards concern whether a party is [or is not] liable in respect of the matter alleged (as was the case in West Tankers 2012), and whether a party's interpretation of the clause in contention is correct. The latter is frequently deployed when a party challenges the jurisdiction of the arbitral tribunal. Inevitably that party says the tribunal lacks jurisdiction and the other party asserts it does. Resolution of this if often dealt with swiftly by virtue of doctrines of separability¹⁴ and competence-competence.¹⁵ Consequently, an interim award may be issued which, while binding on the parties to the arbitration, is not a panacea as it remains open to subsequent challenge with regard to recognition and enforcement.¹⁶

The prevalence of declarations is widespread throughout the arbitration industry and reflects the commercial wishes and requirements of parties to arbitration. This trend has been noted by leading commentators such as Redfern and Hunter, who observe that:

Judicial recognition of the trend can also be found in the West Tankers 2012 decision itself wherein Toulson L.J. noted, "Declaratory judgments, including negative declarations, have become much more common and assumed much greater commercial significance."¹⁸

Parties have often sought declarations in the alternative to the substantive relief. However, it is increasingly common for parties to seek only a declaration and no damages in arbitration proceedings. This can be seen as well within the spirit, purpose and tradition of commercial arbitration, in that it establishes a binding legal position in a manner that may be particularly useful. For example, Redfern and Hunter note that where the parties have a continuing relationship and want to resolve a dispute between them without the risk of damaging that relationship by a demand for monetary compensation, a declaration is often helpful.¹⁹

One can see, therefore, that the issuance of declaratory awards by arbitral tribunals is relatively non-problematic; their enforcement is however not so clear cut.²⁰ Whilst not directly "enforceable" in the same manner as an award which imposes an obligation or a financial liability, a declaratory award may, as was found in West Tankers Inc, be entered as a judgment in the terms of the award, and then enforced as a judgment.²¹

West Tankers 2012: the judgment

In the West Tankers' arbitration, West Tankers secured a declaration—presumably encompassed within the wider award—to the effect that it had no liability to the insurers or the charterers. West Tankers sought to have that "declaratory" award entered pursuant to s.66 of the Act. That section provides:

(2) Where leave is so given, judgment may be entered in terms of the award."

Such a judgment was initially entered on West Tankers' application on an ex parte basis in November 2010; this was then upheld by Field J. the London High Court in April 2011.²² The insurers then appealed, asking the English Court of Appeal in to consider whether there was power under s.66:

As Toulson L.J. observed, there would not normally be a requirement to have such a declaration turned into a judgment of the court, and therefore leave of the court would not normally be granted, "since it is binding as a declaration of rights in any event, and in most cases he would be right."²⁴ But Toulson L.J. was alert to the broader tactical and jurisdictional issues at play and rightly noted

And

West Tankers was prudent to seek judicial recognition of the negative declaration as numerous arbitration commentators, and the authors' own experiences, demonstrate that some EU courts have a "novel" approach the interplay of the New York Convention, the Brussels Regulations and their own state arbitration laws. This has led to a degree of uncertainty and skepticism among users when contemplating arbitration and/or litigation in certain states. That aside, the specific tactical imperative in West Tankers Inc, and which is likely to be of more general application, was several fold:

(a) West Tankers wished to see its arbitral award recognised by the Italian courts, thereby precluding a ruling to the contrary, either on jurisdiction or liability, by those courts.

(b) The risk, however, was that the Italian courts would not recognise the arbitral award alone, notwithstanding the cooperative spirit enshrined in the New York Convention.²⁷ The concern being that the insurers may resist recognition of the award pursuant to art.V of the convention; conceivably the public policy objection in particular.²⁸ These derogations could potentially be attractive to a court, as exist in some jurisdictions, disinclined to recognise foreign arbitral awards.

(c) Having such an award entered as a judgment would make recognition more likely, or alternatively, recognition and enforcement of a subsequent competing judgment obtained by the other party more difficult. Relevantly, the art.33(1) of the Brussels Regulations states that "a judgment given in a member state shall be recognized in the other member states without any special procedure being required". It further states, at art.34, that a judgment shall not be recognised if "manifestly" contrary to public policy in the state in which recognition is sought (nb. a higher test than that in the New York Convention), or it is irreconcilable with a judgment given in a dispute between the same parties in the state in which recognition is sought.

The insurers' grounds of appeal were initially two-fold. First, it contended that s.66 did not allow the court to enter judgment in the terms of the award. Secondly, that such a judgment would not be a judgment within the meaning of art.34(3) (the irreconcilability derogation referred to above). This second ground of appeal was not pursued,²⁹ leaving purely a question of the interpretation of the domestic statute. This turned on the meaning of the word "enforcement" within s.66, and specifically whether such a declaratory judgment, specifically a negative declaratory judgment, was capable of such "enforcement" as opposed to, for example "recognition".³⁰

The insurers relied upon Margulies Brothers Ltd v Dafnis Thomiades and Co (UK) Ltd [1958] 1 Lloyd's Rep. 205, in which the Court of Appeal held that, under the equivalent provision of the Arbitration Act 1950, the court could not "enforce" an award of arbitrators in declaratory form or enter judgment in the terms of the award.³¹ This was, however, distinguished in this instance on the grounds that in Margulies the beneficiary of the declaration had attempted to have it recognised and enforced in financial terms, whereas it had not been "an award of a sum certain".³²

On behalf of West Tankers, two cases in particular were cited which suggested a broader meaning for the term "enforcement" to encompass declarations. These were Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich³³ and National Ability SA v Tinna Oils and Chemicals Ltd (the Amazon Reefer).³⁴ In relation to the older authorities cited in support of the insurers, the point was also made on behalf of West Tankers about the developing nature and role of declaratory awards in arbitration over the last generation (including as described above), to the effect that it would be improper if the courts were not willing or able to support this significant component of modern commercial arbitration. A further, more technical, incongruity would arise (West Tankers pointed out) if the insurers' approach was correct, in that the court could not decline to enforce such an award under s.103 of the Act, but would be incapable of giving effect to an identical English award under s.66.³⁵

In delivering the court's judgment, Toulson L.J. (profoundly) concluded that the declaratory award was capable of enforcement stating:

"The argument that in such cases the court is not enforcing an award but only the rights determined by an award is an over subtle and unconvincing distinction and sits on a shaky foundation. For the enforcement of any judgment or award is the enforcement of the rights which the judgment or award has established."³⁶

Finally, in so far as the award was a negative declaration, Toulson L.J. noted that there was little to suggest any meaningful practical distinction to be made in respect of "negative" declarations for the purposes of enforcement.³⁷

Declarations internationally

It is not only the English courts that have shown themselves willing to support the enforceability of declaratory awards. This approach is reflected in the approach taken by the courts in most such jurisdictions, which is that even where statute or the parties' agreement does not expressly provide for such an award, it will usually be upheld.

In Australia, for example, s.8 of the International Arbitration Act 1974 is in substantially the same terms as s.66 of the Act. In the recent case of AED Oil Limited v Puffin FPSO Limited,³⁸ the Supreme Court of Victoria took a similar approach to the English Court of Appeal, and distinguished some historic English cases which superficially appeared to suggest that such awards should not be recognised by the courts. That declaratory awards are capable of enforcement in Australia had also been confirmed earlier by the Australian Federal Court in the case of Electra Air Conditioning BV v Seeley International Pty Ltd.³⁹

Similarly, other common law courts have demonstrated a preparedness to give effect to arbitral awards (much like the English courts) notwithstanding the fact the award is not a purely monetary award. For example, the US case of Island Creek Coal Sales Co v City of Gainesville 729 F2d 1046, 1049 (6th Cir 1984) involved the meaning and enforceability of arbitration awards under the then US arbitration legislation. There the judicial approach to the non-monetary award was one of "deference to the arbitrators' interpretation of the applicable Rule and Agreement unless they have clearly exceeded their authority" (emphasis supplied).⁴⁰ North of the border, courts in Canada have taken a similarly broad (and commercial) approach in interpreting their procedural rules in order to lend support to the enforcement of foreign arbitral awards, such as the courts of New Brunswick in Adamas Management and Services Inc v Aurado Energy Inc XXX YB Comm Arb 479 (New Brunswick QB 2004) (2005).

Courts in a range of other jurisdictions have also upheld that the New York Convention applies not only to awards of damages or other monetary relief, but also declaratory awards, including common law jurisdictions such as the British Virgin Islands and Bermuda; Born notes that this judicial enforcement of such awards is now "routine".⁴¹ The English Court of Appeal's endorsement can only emphasise the standing of this approach within the common law world. Indeed, given the purpose of most arbitration legislation, in developed jurisdictions, is to support the arbitration process, it would be odd if the courts were not able to support such awards; as Toulson L.J. stated, "... the broader interpretation is closer to the purpose of the Act and makes better sense in the context of the way in which arbitration works".⁴²

Broader application of West Tankers 2012

The judgment raised (and resolved) important issues and approaches being considered to deal with the fundamental issue raised by West Tankers 2009; the limited use of anti-suit injunctions in the European Union. Primarily, West Tankers 2012 has affirmed an important practical way around the non-availability of anti-suit injunctions where courts elsewhere within the European Union have already been seised (i.e. preventing any other EU courts from acting, specifically requiring them to stay any proceedings, in accordance with art.27 of the Brussels Regulations).

But it is important to note the sequence of events in West Tankers has been unusual in that, due to the longevity of the dispute, West Tankers had secured a final declaratory award as to its non-liability. More commonly, any breach or threatened breach of an arbitration agreement will occur early in a dispute (as noted above), and well before the parties can obtain a final award. Subject to art.V of the New York Convention and art.34 of the Brussels Regulation, there appear sound grounds upon which a declaratory award (interim, interlocutory or partial)⁴³, including, for example, to the effect that an arbitration agreement was valid, could be entered as a judgment. From a practical perspective, this would ensure it is recognised ahead of any subsequent, and potentially adverse, judgment elsewhere in the European Union. While this would not halt competing proceedings with quite the efficacy of an anti-suit injunction, it would substantially reduce the likely benefit of, and generally deter, such proceedings.

Conclusion and look forward

West Tankers 2012 adds to a party's war chest when considering how to best deal with an adversary litigating in breach of an arbitration agreement. It also serves to emphasise support, particularly within the Common Law world, for arbitration in all its forms, including declaratory awards, in accordance with the requirements of sophisticated commercial parties. It could also prompt further use and development of declaratory awards as to, for example, the validity of arbitration awards early into an arbitration, potentially on an interim or expedited basis. While the interleaving of a new stage to some disputes in this way risks adding complication and expense for the parties to arbitration, this is no different in principle to, for example, other pre-emptive or restraining steps such as freezing injunctions designed to protect one party against another's attempts to frustrate the proper dispute resolution process. If this serves to deter, halt or limit proceedings or prevent the enforcement of judgments obtained in breach of an arbitration agreement that may be worthwhile.

The future application for West Tankers 2009 and West Tankers 2012 remains, of course, in the hands of those contemplating reform to the Brussels Regulations. This somewhat prolonged process is scheduled to continue at a plenary session of the European Parliament's Legal Affairs Committee (LAC) in July 2012. While revisions have yet to be decided upon, the LAC has previously recommended clarification of the existing arbitration exclusion within the present Brussels Regulation, to exclude more clearly arbitration disputes, including cases where there is a dispute over the validity of an arbitration agreement.⁴⁴ Should such a revision be adopted it is clear that the landscape will change again, with a reversion, including in terms of English procedure to the situation before West Tankers, the period of which may be looked back on as a relatively brief and anomalous interlude within the evolution of international arbitration. The magic continues...

Footnotes

1 Allianz SpA v West Tankers Inc (C-185/07) [2009] ECR I-663 (referred to hereafter as West Tankers 2009).

2 West Tankers Inc v Allianz SPA [2012] EWCA Civ 27 (referred to hereafter as West Tankers 2012).

3 Briefly stated, in August 2000 a vessel owned by West Tankers and chartered to Erg Petroli SpA (Erg) collided with a jetty owned by Erg in Sicily. Erg claimed on its insurers, RAS Riunione Adriatica di Sicurta SpA (now known as Allianz SpA). The charterparty was governed by English law and provided for arbitration in London which was started by Erg against West Tankers in August 2000 and the insurers commenced Italian court proceedings against West Tankers in October 2003. An English anti-suit injunction was first granted in September 2003, being upheld in 2005 and 2007, before being referred to the ECJ, which ruled in 2009.

4 Marc Rich & Co AG v Societa Italiana Impianti PA [1991] ECR 1-3855, the Atlantic Emperor.

5 West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA [2007] UKHL 4, Lord Mance at [28].

6 "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" Allianz [2009] ECR I-663 at [24].

7 Allianz [2009] ECR I-663 at [30].

8 New York Convention art.II(3), cited at Allianz [2009] ECR I-663 at [33].

9 Allianz [2009] ECR I-663 at [28].

10 Allianz [2009] ECR I-663 at [31].

11 From an English perspective, s.48 of the Act provides that an arbitral tribunal may make a declaration as to "any matter to be determined in the proceedings", unless the arbitration agreement provides otherwise. The ambit for a declaration in such instances is intentionally broad and the remit of a declaration under s.48 is far reaching as s.58 of the Act provides that, unless otherwise agreed, an award made by the arbitral tribunal is final and binding both on the parties (i.e. to the arbitration agreement itself), and on any persons claiming through or under them.

12 West Tankers Inc [2012] EWCA Civ 27 Toulson L.J. at [22]

13 Ray Turner, Arbitration Awards: A Practical Approach (Wiley-Blackwell, 2005).

14 Commonly understood as regarding the arbitration clause as constituting a separate and autonomous contract: see for example UNCITRAL Arbitration Rules (2010) art.23(1); ICC Arbitration Rules (2010) art.6(4).

15 In other words the power of an arbitral tribunal to decide upon its own jurisdiction: see for example UNCITRAL Arbitration Rules (2010) art.23(1); ICC Arbitration Rules (2010), art.6(4).

16 See for example, arts 16(3), 35 and 36 of the UNCITRAL Model Law on International Commercial Arbitration; art.V of the New York Convention.

17 Redfern and Hunter on International Arbitration, 5th edn (Oxford: Oxford University Press, 2009), para.9.61.

18 West Tankers Inc [2012] EWCA Civ 27 at [30].

19 Redfern and Hunter on International Arbitration (2009), para.9.63. In support of this, the authors referred to the Saudi Arabia v Arabian American Oil Company (Aramco) arbitration (Saudi Arabia v Arabian American Oil Company (Aramco) (1963) 27 I.L.R. 117) relating to the nature and effect of that corporation's concessions within the Kingdom of Saudi Arabia.

20 "Ordinarily speaking, however, a declaration cannot be enforced by the ordinary methods of execution provided under the Civil Procedure Rules" Toulson L.J. in West Tankers Inc [2012] EWCA Civ 27 at [25]; note also the comments of Judge L.J. in Saint George's Healthcare NHS Trust v S [1999] Fam. 26, 60 wherein he stated: "Non-compliance with a declaration cannot be punished as a contempt of court, nor can a declaration be enforced by any normal form of execution, although exceptionally a writ of sequestration might be appropriate: see Webster v Southwark London Borough Council [1983] QB 698."

21 West Tankers Inc [2012] EWCA Civ 27.

22 West Tankers Inc v Allianz SPA [2011] EWHC 829 (Comm).

23 West Tankers Inc [2012] EWCA Civ 27 at [1].

24 West Tankers Inc [2012] EWCA Civ 27 at [6].

25 West Tankers Inc [2012] EWCA Civ 27 at [12].

26 West Tankers Inc [2012] EWCA Civ 27 at [6].

27 Note that Italy ratified the New York Convention on January 31, 1969.

28 New York Convention art.V(2)(b).

29 While this ground was not pursued, it appears it was unlikely to have succeeded as it would be artificial to seek to distinguish between a declaratory judgment and otherwise as the wording of art.32, is particularly broad and makes no such distinction. Relevantly, it states: "For the purposes of this Regulation, "judgment" means any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as the determination of costs or expenses by an officer of the court." Furthermore, paras (17) and (18) of the Brussels Regulations preamble tacitly contemplate the enforcement of declaration judgments.

30 West Tankers Inc [2012] EWCA Civ 27 at [18].

31 West Tankers Inc [2012] EWCA Civ 27 at [20].

32 West Tankers Inc [2012] EWCA Civ 27 at [26].

33 Associated Electric and Gas Insurance Services Limited v European Reinsurance Co of Zurich [2003] 1 W.L.R. 1041.

34 National Ability SA v Tinna Oils and Chemicals Ltd [2009] EWCA Civ 1330; [2010] 1 Lloyd's Rep. 222.

35 Section 103 of the Act incorporates art.V of the New York Convention, providing only very limited grounds for refusing recognition.

36 West Tankers Inc [2012] EWCA Civ 27 at [36].

37 The insurers' attempts to draw this distinction, referred to at West Tankers Inc [2012] EWCA Civ 27 at [18].

38 AED Oil Limited v Puffin FPSO Limited [2010] V.S.C.A. 37.

39 Electra Air Conditioning BV v Seeley International Pty Ltd [2008] F.C.A.F.C. 169

40 Gary Born, International Commercial Arbitration (Kluwer Law International, 2009), p.2482.

41 Gary Born, International Commercial Arbitration (2009), p.2481.

42 West Tankers Inc [2012] EWCA Civ 27 at [36].

43 See for example the LCIA Arbitration Rules art.26(7); and UNCITRAL Arbitration Rules (2010) art.34.1.

44 Committee on Legal Affairs Draft Report June 28, 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.