In an important decision in support of international arbitration, the Commercial Court has held that an arbitral tribunal may award 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. Despite the fact that the charterparty was subject to English law and contained a London arbitration clause, and that arbitration had already been started in England, Allianz sued West Tankers in court in Syracuse, Italy. West Tankers initially obtained an anti-suit injunction from the Commercial Court preventing further steps in 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 court 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’ claim for damages or an indemnity from Allianz in respect of the costs it had incurred in the Syracuse proceedings, commenced in breach of the arbitration agreement. 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 analysed in detail the ECJ judgment and the preceding Opinion of Attorney General Kokott before concluding that, although the ECJ decision and the Regulation operate to prevent anti-suit injunctions between courts within Member States, they do not extend to private arbitral tribunals.
Flaux J noted the reluctance with which it appears the arbitrators came to their decision, and that the majority of the tribunal concluded that their jurisdiction was circumscribed by Allianz’s right to bring proceedings before the Italian courts under Article 5(3) of the Regulation. Flaux J concluded 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. In other words, the tribunal considered that the ECJ’s reasoning obliged an arbitral tribunal (as well as the courts of a Member State) to defer to decisions of the court first seised. Flaux J noted that the Advocate General stated in her Opinion that an arbitral tribunal may come to a different decision from that of the court first seised. Flaux J distinguished 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 concluded that there is no reason why the tribunal does not have the jurisdiction to grant equitable damages or an indemnity to compensate for losses flowing from a court claim brought in breach of an arbitration agreement.
The English courts are, judgment by judgment, carving out a route by which parties relying on a (breached) arbitration agreement can retain 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.