In a landmark decision, the European Court of Justice (the “ECJ”) has decided that courts in countries within the European Union cannot prevent parties from issuing court proceedings in other Member States simply on the basis that the dispute arises under a contract which includes an arbitration agreement. The ECJ decided that any such “anti-suit injunction” would be contrary to EC Regulation 44/2001 (the “Regulation”). This decision could have a profound effect on the choice of London as a venue for arbitration proceedings.
Anti-Suit Injunctions: What Are They?
Before discussing the facts of the decision, it is worth explaining what an anti-suit injunction is and what it does. An anti-suit injunction is a powerful common law tool used to protect a party’s contractual right to arbitrate. It can be obtained by any party to an arbitration agreement and, in effect, prevents other parties to the arbitration agreement from commencing court proceedings. As a result, the anti-suit injunction is used to uphold the arbitration agreement.
Facts of the Case
West Tankers owned a vessel that was chartered to Erg Petroli, an Italian entity. The vessel collided with a jetty in Syracuse that was also owned by Erg. The charterparty between West Tankers and Erg was governed by English law and contained an arbitration agreement specifying London as the seat of arbitration. Erg made an insurance claim and the insurers paid the limit of the insurance cover. The following proceedings took place:
- Erg commenced arbitration proceedings in London against West Tankers in relation to claims for its uninsured losses.
- Erg’s insurers (RAS Riunione) commenced proceedings in Italy against West Tankers to recover amounts paid under the insurance policies.
- 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. The English first instance and appeal courts agreed with West Tankers and granted an injunction restraining the insurers from continuing the Italian proceedings. That claim was then referred to the House of Lords, which referred it to the ECJ.
Jurisdiction Regulation and the Scope of the “Arbitration Exclusion”
The Regulation provides a set of rules for the allocation of jurisdiction between EU Member States. Article 1(2)(d) of the Regulation provides that proceedings relating to arbitration are excluded from the scope of application of the Regulation, the so-called “arbitration exclusion.”
The English courts decided that the arbitration exclusion was applicable given that the purpose of proceedings before the English court was to protect West Tankers’ right to have the dispute determined by arbitration. This meant that the proceedings fell outside of the Regulation.
House of Lords’ Observations
The House of Lords, England’s highest appellate court, recognised that the question of whether or not to extend European authority to arbitration would affect the efficacy of arbitration as a method of resolving commercial disputes. Lord Hoffmann, who gave the leading judgement, underlined the importance of the principle of autonomy of the parties to choose the seat of arbitration and governing law.
Advocate General’s Opinion
In any ECJ proceeding, and before the ECJ gives its ruling, it is usual for the ECJ Advocate General to issue an advisory opinion. This opinion is not binding on the ECJ but it is usually very influential. In West Tankers, the Advocate General concluded that the English court does not have the power to grant an anti-suit injunction. The opinion was based on the grounds that such an injunction 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 remedy not recognised in the national laws of the other EU Member States, and that it is at odds with the principles of mutual trust, implicit within the Regulation.
The Advocate General’s opinion was as follows.
- The parties issued proceedings in the Italian court first.
- The mere fact that the 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 Advocate General referred to the decision delivered by the ECJ in Turner v. Grovit (2004) concerning a breach of an exclusive jurisdiction clause. In that case, the ECJ upheld the Regulation despite the fact that the first set of proceedings were brought by a party in bad faith with the intent to frustrate existing or likely proceedings in the mutually agreed jurisdiction.
The Advocate General considered that the arbitration exclusion should be limited to circumstances in which the subject matter of the proceedings was the arbitration itself (such as an application for the appointment of an arbitrator). In this case, the subject matter of the court proceedings was a claim in tort for damages and, therefore, the Advocate General concluded that the Regulation applied. This was a significant narrowing of the scope of the arbitration exclusion as the English Courts had historically understood and applied it.
The ECJ’s judgment of 10 February 2009 upheld the reasoning of the Advocate General, including the scope of the arbitration exclusion in the Regulation.
Although the ECJ’s approach is in principle correct, the decision is particularly unsatisfactory from the perspective of a contracting party that may become embroiled in protracted litigation in a country where 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. As a result, a party to an arbitral agreement is effectively deprived of the benefits of the arbitration agreement in that its dispute will be heard in the public courts and will take longer to be determined (particularly if ultimately after the court proceedings, the courts do refer the claim to arbitration).
Impact on London as an Arbitration Venue
The availability of anti-suit injunctions in support of arbitration was considered to be a benefit of using London as an arbitration venue for companies seeking to “insure” their choice of arbitration. It is quite possible, therefore, that after the ECJ ruling, some disputes will now be decided in other international locations, such as Hong Kong.
However, many comparable European seats of arbitration, such as France and Switzerland, do not have anti-suit injunction protection. In any event, the other advantages of London as a seat of arbitration (including the utility of the 1996 Arbitration Act, the number of excellent arbitrators based locally and the English court policy) remain strong reasons to continue to opt for London for arbitration.
Impact on Contracting Parties
In 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 arbitration. Even if the Member State’s court refuses jurisdiction and refers the matter to arbitration, a jurisdictional battle will incur potentially significant additional legal costs and delays.
The decision, though, is unlikely to have an impact on the decision to include an arbitration agreement in international commercial contracts. An agreement to arbitrate is still likely to be preferred because of ease of enforcement provided by the New York Convention and the fact that disputes can be kept confidential.