The Commercial Court has found that an arbitral tribunal is not deprived of its jurisdiction to award equitable damages against a party that breaches an arbitration agreement by bringing proceedings in the courts of a Member State, even though an anti-suit injunction against such proceedings is incompatible with EU Regulation 44/2001.
This decision is the latest instalment in a dispute between the insurers of charterers of a vessel ("Allianz") and the vessel's owners ("West Tankers") following the collision of the vessel with a jetty in Italy. Although the charterparty was subject to English law and contained a London arbitration clause, pursuant to which arbitration had been started in England, Allianz commenced proceedings before a court in Syracuse, Italy. West Tankers obtained an anti-suit injunction from the Commercial Court against the claim in Italy. However, this was set aside following the landmark ECJ decision, which ruled it incompatible with EU law for a court of one Member State to grant an anti-suit injunction against the court of another (click here to see our previous Law-Now on this issue).
Subsequently, the arbitral tribunal issued an award for a declaration that West Tankers was not liable to Allianz and the Court of Appeal confirmed that declaratory awards can be enforced in the same manner as a judgment, regardless of the ECJ ruling (click here to see our previous Law-Now on this issue).
In the most recent development, the tribunal dismissed West Tankers' claims that it should recover damages or an indemnity in respect of the costs it had incurred in the Syracuse proceedings from Allianz, as they were commenced in breach of the arbitration agreement. However, on appeal (pursuant to section 69 of the Arbitration Act 1996), the Commercial Court found that, in dismissing this claim, the tribunal erred in law, and should have at least deferred a decision on the claim.
Flaux J's judgment analyses in detail the ECJ judgment and the preceding Opinion of Attorney General Kokott and uses these to explain his view that the ECJ decision and the Regulation do not extend to private arbitral tribunals.
Flaux J notes the reluctance with which it appears the tribunal came to its decision, and that the majority of the tribunal concluded that its jurisdiction was circumscribed by Allianz's right to bring proceedings before the Italian courts under Article 5(3) of the Regulation. Flaux J surmises that the tribunal considered the ECJ decision's "underlying philosophy", by which it felt bound, to be that the right to bring proceedings in the court first seised under the Regulation (the Italian court in this case) should take precedence over any proceedings in another national court, including any proceedings before an arbitral tribunal. Flaux J goes on to evaluate that this analysis can only be considered valid if the Attorney General and the ECJ's reasoning obliges an arbitral tribunal (as opposed to the courts of a Member State) to defer to decisions of the court first seised. However, Flaux J points out that the Advocate General clearly states in her Opinion that an arbitral tribunal may come to a different decision from that of the court first seised. As such, Flaux J somewhat discredits the reasoning which brought the tribunal to its decision.
Flaux J goes on to distinguish the way in which the Regulation applies to national courts of Member States from the way it applies to private arbitral tribunals. For example, he cites that the European law doctrine of mutual trust in another Member State's system of law is not required of an arbitral tribunal. Further, he states that whilst the court in one Member State cannot review the decision of the court first seised, this does not apply to an arbitral tribunal. Arbitration falls outside of the Regulation and an arbitral tribunal is therefore not bound to give effect to the principle of effective judicial protection. This reasoning does not conflict with or misapply the ECJ decision, as the ECJ decision concerned the anti-suit injunction granted by a national court of a Member State, not an arbitral tribunal. Flaux J concludes that there is no reason why the tribunal does not have the jurisdiction to grant equitable damages or an indemnity.
Despite the ECJ decision, the English courts are, judgment by judgment, carving out a route by which parties relying on a (breached) arbitration agreement can still retain some of the benefits and protections of the arbitration process without coming into conflict with the ECJ decision. Although there is nothing that can prevent proceedings being brought in another Member State's courts, the English courts will enforce a declaratory arbitral award in the same way as a judgment, and, following this decision of the Commercial Court, there is now nothing to stop the tribunal from awarding damages or an indemnity to compensate a party for the costs related to this stalling tactic. Parties may now at least claim compensation for the frustrating circumstances the ECJ decision has allowed.
It is understood that this decision is being appealed.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 23/05/2012.