UK: Court Of Appeal Upholds Spanish Court's Ruling On Arbitration

Last Updated: 14 April 2010
Article by Miranda Karali and Sapna Garg

The Court of Appeal decrees that a member state's ruling on the validity of an arbitration agreement is valid and binding in the same manner as any judgment made under the Brussels Regulation. Endesa Generacion v National Navigation Co (2009).

The Court of Appeal has decided that, where a member state has ruled upon whether or not an arbitration agreement is valid, that member state's judgment should be valid and binding in the same way as any judgment made under Regulation 44/2001 (the "Brussels Regulation').

Accordingly, such a judgment is binding in proceedings which fall outside the remit of the Brussels Regulation, such as arbitration proceedings. By increasing the power and effect of member states' rulings on arbitration agreements in this way, the Court has reduced the risk of parallel proceedings and the likelihood of conflicting judgments between different courts and tribunals.

In reaching this decision, the Court of Appeal fell in line with the spirit and rationale of the West Tankers (2009) judgment handed down last year by the European Court of Justice ("ECJ').

The Court of Appeal's decision overturns that of the Commercial Court in April 2009. The claimant had originally applied to the Commercial Court for a declaration that the London arbitration clauses in the parties' agreements (a head charterparty and a voyage charterparty) were valid and binding and for an anti-suit injunction against the continuance of proceedings by the other party in Spain. In the Spanish proceedings, the Mercantile Court of Almeria had made a preliminary finding that the arbitration clauses were invalid.

The Commercial Court accepted that the West Tankers case (which disallowed the use of anti-suit injunctions in respect of proceedings in other member states) precluded it from granting the anti-suit injunction against the Spanish court but decided that it did not prevent it from granting the declaration sought by the claimant. It held that this was because the English proceedings seeking the declaration fell within the exception for arbitration contained in the Regulation and could therefore be regarded as outside its scope. The Spanish judgment was not binding in such proceedings. Furthermore, a declaration was not an interference with the jurisdiction of the court of another member state. Finally, as a matter of public policy, the United Kingdom is obliged under the New York Convention to give effect to an arbitration clause that is valid in accordance with its proper law.

The Court of Appeal's view on the matter was directly opposed. Relying on West Tankers, it decided that the Spanish court's decision regarding the validity of the parties' arbitration agreement was binding on the parties. This was because the nature of the proceedings in Spain (seeking the arrest of a vessel and claiming damages for late delivery under a bill of lading) meant that they were proceedings within the Regulation. Hence, the Spanish court's decision regarding whether or not the preliminary issue of whether the parties' arbitration clause was validly incorporated, was a "judgment' within the terms of the Regulation and must be recognised or enforced as such in the UK. The fact that the Spanish ruling was binding in this way meant that the Court of Appeal did not have discretion to take into account public policy grounds such as the UK's obligations under the New York Convention.

So what is the impact of this decision? Presumably, a decrease in the risk of parallel proceedings since courts supervising arbitrations and/or arbitral tribunals no longer have any legitimate basis to proceed in the face of a binding member state court's judgment to the effect that the parties' arbitration agreement is invalid. In this sense, the ruling offers greater certainty. However, parties wishing to arbitrate may be concerned that they no longer have any obvious means of protecting arbitration proceedings from such adverse rulings by member state courts: it is clear now that where a member state's court has issued a judgment declaring an arbitration agreement invalid, it is no longer worthwhile seeking declaratory or other interim relief (anti-suit injunctions) in support of the arbitration agreement. West Tankers, and now Endesa, disallow anti-suit injunctions for this purpose and uphold the validity and binding nature of member state courts' judgments on the (in)validity of parties' arbitration agreements.

Interestingly, the decision leads to an imbalance in the reciprocal enforcement of judgments between member states. Judgments handed down in arbitration proceedings and court proceedings solely concerned with arbitration are not binding in other member states (as they fall within the Regulation's exception for arbitration) and do not stop another member state seised of the substantive dispute from ruling on whether the arbitration agreement is valid. However, such a member state's ruling on whether or not the arbitration agreement is valid now enjoys the status of a "Regulation' judgment and must be recognised and enforced in other proceedings.

The Brussels Regulation is currently being reviewed by the European Commission. In its Green Paper, the European Commission stresses the importance of arbitration agreements and states that they should be given the "fullest possible effect and the recognition and enforcement of arbitral awards should be encouraged". It suggests giving priority to the courts of the member state where the arbitration takes place to decide on the validity of arbitration agreements with greater cooperation between the courts seised.

Although not final findings, in the wake of the responses to the Green Paper, the European Parliament's Committee on Legal Affairs has expressed the view that the Regulation's exclusion for arbitration should clarify that judgments made in breach of an arbitration clause and judgments holding that arbitration clauses are invalid, fall outside the scope of the Regulation, and would therefore not be enforceable in other member states under the regulation. These proposals would reverse the effect of the Court of Appeal's decision in this case and, if adopted, would increase the effectiveness of arbitration agreements and protect them from scrutiny and adverse rulings by member state courts. Whether these proposals will be adopted remains to be seen, and we will report upon their conclusions and recommendations in due course.

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.

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