European Union: Anti-suit Injunctions: ECJ Decision of 10 February 2009 in West Tankers Case

Last Updated: February 11 2009
Article by Philippa Charles

Originally published 10 February 2009

Keywords: Anti-suit injunctions, ECJ, West Tankers, arbitration agreement, contractual right

Introduction

In a landmark decision released today in the case of West Tankers,1 the European Court of Justice (the "ECJ") has removed an English court's power to grant an anti-suit injunction in support of an arbitration agreement. The case was referred to the ECJ by the House of Lords on 2 April 2007. The House of Lords2 asked the ECJ for a preliminary ruling on the question "Is it consistent with EC Regulation 44/20013 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?" Despite the views expressed by the House of Lords in support of this common law remedy, the ECJ has confirmed the opinion of the Advocate General4 by ruling that an order in such circumstances is not compatible with Regulation 44/2001 ("the Regulation").

English Law Remedy to Support Arbitration Proceedings

An anti-suit injunction is a powerful common law tool used to protect a party's contractual right to arbitrate or to refer proceedings to a particular court's jurisdiction by defeating competing proceedings commenced in breach of an arbitration agreement or exclusive jurisdiction clause. The English court's ability to grant such relief in respect of exclusive jurisdiction clauses has become restricted in recent years by the effect of certain decisions of the ECJ. Until now, the position of arbitration cases was different as they are excluded from Regulation 44/2001. The position has now changed as a result of this ruling.

Facts of Case

West Tankers owned a vessel which was chartered to the Insured. The vessel collided with a jetty in Italy also owned by the Insured. The charterparty between West Tankers and the Insured was governed by English law and contained an arbitration agreement specifying London as the seat of arbitration. The Insured made an insurance claim and the Insurers paid the limit of the insurance cover. The following proceedings took place:

  • The Insured commenced arbitration proceedings in London against West Tankers in relation to claims for its uninsured losses.
  • The Insurers (stepping into the shoes of the Insured) commenced proceedings in Italy against West Tankers to recover amounts paid under the insurance policies by way of a claim in tort for damages.
  • West Tankers sought an injunction in the English court, arguing that the Insurers were bound by the arbitration clause in the charterparty to arbitrate in London. (Although the Insurers were not a party to that agreement, they had stepped into the Insured's shoes.) The English court at first instance, and the House of Lords on appeal, agreed with West Tankers and granted an injunction restraining the Insurers from continuing the Italian proceedings.

Jurisdiction Regulation and the Scope of the "Arbitration Exclusion"

The Regulation provides a set of rules for the allocation of jurisdiction between Member States and is based on the concept that the courts of each Member State should trust other EU courts to apply those rules correctly. Article 1(2)(d) of the Regulation provides that arbitration is excluded from the scope of the application of the Regulation, the so-called "arbitration exclusion." The House of Lords took the view that the arbitration exclusion was applicable given that the purpose of proceedings before the English courts was to protect West Tankers' right to have the dispute determined by arbitration. This meant that the proceedings fell outside of the Regulation and therefore could not be inconsistent with the provisions of the Regulation.

House of Lords' Observations

The House of Lords recognised that the question of whether or not to extend European authority to the arbitral context would affect the efficacy of arbitration as a method of resolving commercial disputes. Lord Hoffmann underlined the importance of the principle of autonomy of the parties to choose the seat of arbitration and governing law. An anti-suit injunction is a valuable weapon, which promotes legal certainty and reduces the possibility of conflict between an arbitration award and the judgment of a national court.

Advocate General's Opinion

The Advocate General concluded that the English court does not have the power to grant an anti-suit injunction, on the grounds that this would constitute an unwarranted interference with the autonomy of the courts of another Member State. The rationale of the Advocate General's opinion reflects the European concern that the anti-suit injunction is a common law creation, alien to other European Member States, and is at odds with the principles of mutual trust, thereby impairing the effectiveness of the Regulation.

According to the opinion, since the Italian court was "first seised" of the claim, the mere fact that those proceedings were brought in breach of an agreement to arbitrate should not deprive the Italian court of its right to determine its own jurisdiction pursuant to the provisions of the Regulation. The opinion reflects the decision delivered by the ECJ in Turner v Grovitr5 (2004) in respect of a breach of an exclusive court jurisdiction clause, even where the proceedings abroad are brought by a party in bad faith with a view to frustrating existing or likely proceedings in the mutually agreed jurisdiction. To address the impact of the "arbitration exclusion" from the Regulation, the Advocate General found that this should be taken to apply only in circumstances in which the subject matter of the proceedings was the arbitration itself (such as an application for the appointment of an arbitrator). Given that the substantive subject matter of the Italian proceedings was a claim in tort for damages, the Advocate General concluded that the Regulation was in fact applicable.

ECJ Decision

The ECJ's judgment of 10 February 2009 has largely upheld the reasoning of the Advocate General, including as to the scope of the arbitration exclusion in the Regulation. What the ECJ does is to use a different treaty to assure itself that the right decision will be made by the court first seised. All the Member States of the European Community are parties to the New York Convention.6 The ECJ's decision relies on Article II(3) of the New York Convention, according to which the court of a Contracting State, when seised of an action in a matter in respect of which the parties have made an arbitration agreement, will, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Although the ECJ's approach is in principle correct, it is particularly unsatisfactory from the perspective of a contracting party, given that it may become embroiled in protracted litigation in a country where the domestic courts cannot decide the issue of jurisdiction on a preliminary basis but must instead determine both jurisdiction and the merits issues at the same time. The European principle of uniformity in respect of jurisdiction emphasised by the ECJ is undermined by the fact that the Member States do not have a universal process for deciding jurisdiction as a preliminary matter and therefore a party to an arbitration agreement is effectively deprived of the benefits that it had envisaged when entering into the arbitration agreement as the matters come before a public forum and will take considerable time to be determined (even though ultimately claims should be referred to arbitration).

Impact on London as an Arbitration Venue

What impact will the decision have on London as a seat of arbitration? The availability of anti-suit injunctions in support of arbitration was a benefit for companies seeking to "insure" their choice of dispute resolution mechanism by providing a significant deterrent to breach of such agreements. That said, however, many comparable European seats of arbitration such as France and Switzerland have not had anti-suit injunction protection, and the other advantages of London as a seat of arbitration (including the quality of the 1996 Arbitration Act, the many excellent arbitrators based here, and the policy of the English courts to support arbitration agreements and implement them in a purposive way) should remain strong reasons to continue to opt for London as a seat. Therefore, we would not necessarily anticipate a significant down-turn in the number of parties opting for London as preferred seat, though some parties may now prefer to opt for New York, Bermuda or Singapore arbitration, as courts in those jurisdictions retain power to grant such relief.

Impact on Contracting Parties

In the light of the ECJ's decision, there is an increased risk that parties to arbitration agreements may tactically commence foreign EU court proceedings to avoid or frustrate the bringing of concurrent arbitration proceedings. Even if the Member State's court refuses jurisdiction and refers the matter to arbitration, a jurisdictional battle will incur potentially very significant additional legal costs and time. Parties who have entered into an arbitration agreement providing for arbitration in London for the very purpose of avoiding protracted litigation in an unfamiliar jurisdiction will no longer be afforded the protection of an anti-suit injunction to support their arbitration agreement.

For companies, the effect of the decision is to deny them the full benefit of their agreement to arbitrate and subject them to litigation in a foreign jurisdiction, albeit within the EU. The same conclusion would apply where the parties have agreed that disputes should be resolved in a particular court (at least where proceedings are brought in an EU Member State). Proceedings outside the EU may still be restrained by the English courts. This important consideration aside, however, an agreement to arbitrate will retain its main advantages, particularly in international disputes, since the enforceability of the award would be more straightforward than enforcement of a judgment, the parties may select a neutral and expert tribunal and the proceedings can be handled confidentially and out of the public eye, so far as possible.

Conclusion

In circumstances where a breach has occurred and proceedings have been brought in a foreign court, the defendant company is faced with a series of potentially expensive choices: to challenge the proceedings to obtain a stay or dismissal in favour of arbitration; to settle the matter, to save time and costs; or to proceed to judgment in that jurisdiction in the hope of resisting enforcement of an adverse judgment by relying on the breach. In that respect this decision appears to undermine, rather than protect, the principle relied upon by the Advocate General that "the autonomy of the parties to a contract ... must be respected."

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Footnotes

1. ECJ Judgment of 10.2.2009 C-185/07 Riunione Adriatica di Sicurta SpA RAS v West Tankers Inc.

2. West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA [2007] UKHL 4, [2007] 1 Lloyd's Rep 391.

3. Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters OJ L 12, p.1.

4. Opinion of Advocate General Juliane Kokott delivered on 4 September 2008. Allianz SpA (formerly Riunione Adriatica Di Sicurta SpA) and Others v West Tankers Inc (Case C/185/07).

5. Case C-159/02 Turner v Grovit [2004] ECR I-3565, [2005] 1 AC 101.

6. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958, United Nations Treaty Series (UNTS), Volume 330, p. 3.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2009. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

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