“Clash of the Titans” - House of Lords v European Court of Justice

West Tankers Inc v RAS Riunione Adriactica di Sicurta SpA [2007] UKHL 4

The long-awaited House of Lords decision in the “Front Comor” has predictably failed to resolve the issue which was leapfrogged to it from the High Court, bypassing the Court of Appeal. Whilst in their judgments Lords Hoffman and Mance make their views clear, the House of Lords has referred to the European Court of Judgment (“ECJ”) the following question:

“Is it consistent with EC Regulation 44/2001 for a court of a MemberState to make an order to restrain a person from commencing or continuing proceedings in another MemberState on the ground that such proceedings are in breach of an Arbitration Agreement?”

The subject of anti-suit injunctions was addressed in an earlier website article, Anti-Suit Injunctions, European Law And London Arbitration, but the subject has received a lot of attention in various circles recently and merits a recap.

The Supreme Court Act 1981 gives jurisdiction to the High Court to grant an injunction in all cases in which it is just and convenient to do so. As such, injunctions restraining a party to an arbitration agreement from proceeding in a foreign court are regularly granted. Further by section 44 of the Arbitration Act 1996, the High Court has power to grant an injunction “for the purposes of and in relation to arbitral proceedings.”

The practice of granting such injunctions is in full force where the foreign proceedings lie outside Europe.

Within Europe EC Council Regulation No.44/2001 governs the jurisdictions of the courts of the member states and applies to civil and commercial matters whatever the nature of the court.   The essence of the Regulation is that a defendant can be sued in the court of the member state where he is resident.  The Regulation goes on to provide expressly that arbitration is excluded.   

Putting arbitration to one side for the moment, the present position where foreign proceedings are within Europe is laid down by the decision of the ECJ in Turner v Grovit [2004] AER 485. The High Court cannot grant such injunctions because the parties have agreed to refer a dispute to the jurisdiction of a particular court. This would run contrary to the spirit and intention of the Regulation. It is for the Court first seised of the proceedings to decide whether a binding agreement exists to submit the dispute to some other court. The second court cannot step in and form its own view on jurisdiction, and thus there is no basis on which an anti-suit injunction can be sought in support of an agreed jurisdiction clause. Indeed the judgment provides:

“However, a prohibition imposed by a court, backed by a penalty, restraining a party from commencing or continuing proceedings before a foreign court, undermines the latter court’s jurisdiction to determine the dispute. Any injunction prohibiting a claimant from bringing such an action must be seen as constituting interference with the jurisdiction of the foreign court which, as such, is incompatible with the Convention.”

The ECJ considers that the Regulation provides a complete code for the allocation of jurisdiction and that member states must “trust” the courts of the other member states to follow the code and not interfere.

Back to arbitration proceedings; in this case, the “Front Comor” collided with a jetty owned by the charterers. The charter was subject to English law and London arbitration. Charterers recovered under their insurance and commenced London arbitration proceedings against the owners for the excess. However insurers, using their rights of subrogation, brought proceedings in Siracusa by virtue of jurisdiction under the Regulation.

Owners brought proceedings in the High Court to restrain the insurers from taking further steps save by way of arbitration and required them to discontinue the proceedings in Siracusa. In March 2005 Colman J granted owners’ application and certified the ensuing appeal as suitable to leapfrog straight to the House of Lords.

The Lords made several observations for the ECJ in support of their view that it is consistent with the Regulation for the courts of a member state to make an order restraining proceedings in another member state on the ground that such proceedings are in breach of an arbitration agreement.

Arbitration is excluded from the Regulation and the basic tenets by which jurisdiction are allocated under the Regulation are unsuited to arbitration. The seat and law of arbitration are generally chosen by parties for reasons of neutrality, availability and effectiveness of the supervisory body. Parties engaged in commerce and trade seek arbitration in order to stand outside the court process and prefer the informality, privacy and limited rights of appeal that arbitration offers.

Arbitration needs the support of the courts and it is important that the European community provides that support. The promotion of legal certainty and the reduced risk of conflict between an arbitration award and a judgment of a national court are to be desired. As these proceedings are entirely to protect the owners’ contractual right to have their dispute determined by arbitration, they fall outside the Regulation and are not inconsistent with the Regulation. Whilst the courts of member states must trust each other to get it right, they must equally trust arbitrators (Kompetenz-Kompetenz doctrine) or the courts exercising supervisory jurisdiction to decide if the arbitration agreement is binding and then enforce that decision by an order requiring the parties to arbitrate not litigate.

Current thinking is divided as to how the ECJ will rule in this matter. It is possible that the ECJ will interpret the Regulation such as to allow the court first seized of the matter to rule on whether a binding arbitration agreement does in fact exist rather than allowing a party to seek the support of the courts of the seat of the arbitration. If so, in the ”Front Comor”, the Courts of Siracusa would determine the question.  

In Van Uden Africa Line v Kommanditgesellschaft In Firma Deco-Line [1999]QB 1225, the ECJ ruled that in a case where the substantive dispute is referred to arbitration, court proceedings for provisional measures do not fall within the arbitration exception. Rather they held that such provisional measures are not ancillary to arbitration proceedings but parallel to them concerning not arbitration as such but the protection of a wide variety of rights. 

Although criticised as wrong, this decision read in the light of Turner V Grovit could lead to the ECJ making a decision in this case in direct conflict with the Lords.

Interestingly, the French Supreme Court twice last year refused to accept jurisdiction in claims brought under Cogenbills of lading where owners’ argument was that as the bills of lading incorporated the charterparty arbitration clause, only arbitrators could rule on their own jurisdiction. To date, the approach of the French courts has been that without direct evidence that receivers knew and accepted an arbitration clause, they were not bound by it. On that reasoning the French courts would ignore the arbitration provisions and accept jurisdiction over the claims. 

However, the Supreme Court accepted owners’ arguments and ordered the claimants to commence arbitration proceedings (Recognition of Arbitration Clauses - French Law ) and look to the tribunal to rule on their own jurisdiction under the doctrine of Kompetenz-Kompetenz.

If the ECJ are to look to harmonise the position where arbitration is concerned, building on the decisions of the French Supreme Court and supporting arbitrators would be a good place to start.

 

Update - March 2012

A website article relating to this case has recently been published: EU - Enforcement of Judgements v Arbitration Proceedings