Australia: West Tankers - The End Of The World Of Anti-Suit Injunctions As We Know It?

Key Point

• Parties entering into cross-border commercial agreements should consider the seat carefully in the light of the West Tankers decision.

Anti-suit injunctions are commonly used to restrain court proceedings which have been commenced by a party in breach of an arbitration agreement.

Last year the English House of Lords referred the issue of anti-suit injunctions in support of arbitral proceedings to the European Court of Justice ("ECJ") for a preliminary ruling in the West Tankers case (Allianz SpA v West Tankers Inc [2007] UKHL 4). The precise question referred to the ECJ was: "Is it consistent with the Regulation (EC) No 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?".

On 4 September 2008 Advocate General Kokott of the ECJ published her opinion providing a negative answer to the question of the House of Lords in West Tankers. Arbitration practitioners around the world now fear the ECJ will follow the Advocate General's lead.

Background

In the earlier case of Turner (Case C - 159/02 Turner [2004] ECR I-3565) the European Court of Justice held that an injunction by a court of a EU Member State directed to restrain proceedings in another court within the EU is inconsistent with the Brussels Convention, in particular with the underpinning principle of "mutual trust". Since then the Brussels Convention has been superseded by Regulation (EC) No 44/2001 on jurisdiction and enforcement of judgments. The Regulation is to a large degree consistent with the Brussels Convention in respect of anti-suit injunctions.

The effect of the Regulation is that courts within a Member State may assume jurisdiction on a "first in best dressed" basis. In other words an anti-suit injunction by a court restraining a party from continuing proceedings in another court (both courts being within the EU) conflicts with the principles of independence allowing each court to independently determine its own jurisdiction.

Notwithstanding the judgment in Turner, courts within the United Kingdom have continued to issue anti-suit injunctions in support of arbitration proceedings on the basis that Article 1(2)(d) of the Regulation contains an exception with respect to arbitration. The question before the ECJ was therefore whether the reference to arbitration in Article 1(2)(d) of the Regulation allows a court to issue an anti-suit injunction in circumstances where court proceedings have been commenced in another Member State court in contravention of an arbitration agreement which exists between the disputing parties.

The decision of the House of Lords

The dispute before the House of Lords in West Tankers concerned an insurance claim arising from the collision of a ship with a jetty in Italy. The charter party was governed by English law and included an arbitration agreement providing for arbitration in London. Nevertheless, the insurer commenced proceedings against the ship owner before the courts in Syracuse, Italy.

In relying on the existence of the arbitration agreement West Tankers sought an application from an English court to restrain the insurer from continuing the court proceeding in Syracuse. The English High Court granted the anti-suit injunction at first instance and the House of Lords upheld that decision in early 2007. Nevertheless, the House of Lords referred the matter to the ECJ for a preliminary ruling on this issue.

The Advocate General's Opinion

In Advocate General Kokott's opinion anti-suit injunctions in support of arbitration proceedings are inconsistent with the Regulation. The relevant proceedings in this case were the court proceedings in Italy. Accordingly, the exemption in Article 1(2)(d) of the Regulation for arbitration has to be determined on the basis of the substantive proceedings pending before the court.

Advocate General Kokott argued that anti-suit injunctions issued in respect of court proceedings which are held to be in contravention of arbitration proceedings do not fall within that exemption. Whether an arbitration agreement is valid - and therefore whether court proceedings contravene the arbitration agreement - is not a matter that is exclusively related to arbitration.

She concluded by stating that it is consistent with the New York Convention for a court first seized to determine whether the matter before the court is subject to an arbitration clause and whether the claim should therefore be referred to arbitration.

What are the consequences for arbitration?

While the opinion by the Advocate General is not binding, it is widely expected that the ECJ will follow the opinion. The decision is likely to have a major impact on the arbitration scene in Europe, especially London which as a major international place for arbitration is destined to lose some of its attractiveness.

As the Regulation only binds courts in Member States of the EU, courts outside the EU are still able to issue anti-suit injunctions in respect of court proceedings which have been commenced in contravention of an arbitration agreement.

We therefore recommend that parties entering into cross-border commercial agreements should take this into account when drafting arbitration agreements in particular with regard to choosing a seat jurisdiction.

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.