Allianz SpA (formerly Riunione Adriatica Di Sicurta SpA) and Others v West Tankers Inc.

English courts may soon be unable to restrain court proceedings commenced in other EU member states in breach of an arbitration clause, as the European Court of Justice (ECJ) looks set to call time on anti-suit injunctions within Europe.

This was the proposal of the Advocate General in the case Allianz SpA (formerly Riunione Adriatica Di Sicurta SpA) and Others v West Tankers Inc. (Case C-185/07), recently handed down in the ECJ. Advisory opinions from the Advocate General are persuasive, not binding, but are invariably followed by the ECJ in its final rulings.

Anti-suit Injunctions

The power of English courts to stop competing European proceedings through the issuing of anti-suit injunctions had already been curtailed by the ECJ in Turner v Grovit (Case C-159/02). In that case a party to proceedings pending before an English court had been restrained from commencing or continuing proceedings before the courts of another member state because of an exclusive jurisdiction clause. But the ECJ held that the Brussels Convention, which governs jurisdiction within the EU, precludes anti-suit injunctions against the court of another European member state. The courts first seised of the matter had jurisdiction to determine the appropriate jurisdiction. Nonetheless, English courts were still willing to issue anti-suit injunctions in support of arbitration in London on the ground that under Article 1(2)(d) of EC Regulation 44/2001 (the Brussels Regulation), the Brussels Regulation did not apply to arbitration.

The Facts

The litigation in West Tankers arose out of the collision of a vessel, owned by West Tankers Inc. and chartered to Erg Petroli SpA, with a jetty owned by Erg Petroli in Syracuse, Italy. The charter party was governed by English law and contained an arbitration agreement providing that all disputes arising from the contract were to be dealt with by arbitration in London.

Erg Petroli made claims on various insurances and then commenced arbitration in London against West Tankers. In 2003 Erg Petroli’s insurers, exercising rights of subrogation, commenced proceedings against West Tankers in Syracuse for reimbursement of the amounts they had paid out. The Italian courts had jurisdiction for that claim under Article 5(3) of the Regulation, as proceedings in tort may be brought in the courts of where the harmful event occurred.

In September 2004 West Tankers applied for an injunction from the English court to restrain the insurers from taking any further steps in the Italian proceedings on the grounds that they were in breach of the arbitration agreement. The injunction was granted by the High Court which confirmed that, by claiming a right of subrogation under the contract, the insurers were also bound by the arbitration clause. On appeal by the insurers the case was sent directly to the House of Lords. The Lords, in turn, referred to the ECJ, asking:

“Is it consistent with Regulation (EC) 44/2001 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?”

Lord Hoffman, in order ‘to assist’ the ECJ, gave the opinion that anti-suit injunctions should be permitted. He relied on Article 1(2)(d) of the Brussels Regulation (which provides that the Brussels Regulation does not apply to arbitration) and argued that this exception extended to proceedings which protect the right to have a dispute determined by arbitration. He said anti-suit injunctions were to protect the contractual right to have a dispute determined by arbitration, so fell outside the Brussels Regulation and could not be inconsistent with its provisions. He added that London could be placed at a disadvantage when compared to other international seats of arbitration were it no longer able to issue anti-suit injunctions.

The ECJ received observations on the matter from both parties to the main proceedings, the French and UK Governments and the Commission of the European Communities.

The Advocate General’s Opinion

Advocate General Juliane Kokott disagreed with the arguments of Lord Hoffman. Her conclusion was that the ‘substantive subject matter’ was of most importance in deciding what a dispute was about, rather than taking the arbitration agreement as a starting point, which then meant all subsequent disputes arising from the legal relationship were subject exclusively to arbitration. As such, she said the Italian proceedings did not relate to arbitration as the subject matter of the insurer’s claim there was in tort (and, possibly, contract). This was clearly within the scope of the Brussels Regulation.

The arbitration clause, meanwhile, was “merely a preliminary issue which the court seised must address when examining whether it has jurisdiction.” Even if the preliminary issue fell within the meaning of ‘arbitration’, by virtue of being a preliminary issue it could not change the classification of the proceedings as the substantial subject matter was still within the Brussels Regulation. She concluded that this approach was consistent with the New York Convention, which obliges a national court to refer parties to arbitration unless it finds the arbitration agreement is void or otherwise not applicable. Every court seised is therefore entitled to examine the validity of the arbitration agreement before deciding on whether to dismiss the proceedings and order the parties to arbitrate.

The Advocate General also found short shrift with regard to Lord Hoffman’s concern to preserve London’s status as an international seat of arbitration, commenting that “aims of a purely economic nature cannot justify infringements of Community law.” Although she conceded there would be an additional step in the proceedings should a national court be first seised, such additional proceedings should only occur if the parties disagreed as to the validity of the arbitration clause. Allowing justice by not barring one party access to the courts therefore outweighed the argument in favour of the parties’ autonomy to choose to arbitrate.

Finally, the Advocate General conceded a point made by the House of Lords, that conflicting decisions could arise if the arbitral body (or a national court at its seat) and the national court in another member state both declared they had jurisdiction. But the Advocate General argued that unilateral anti-suit injunctions were not a valid solution as other countries could introduce reciprocal anti-suit injunctions with stiffer penalties, effectively provoking an arms race of injunctions. She suggested including arbitration within Regulation 44/2001 as the answer.

Conclusion

Should the ECJ follow the Opinion when it hands down its decision (which is expected early in 2009), London could lose a useful weapon in its arbitral armoury by having anti-suit injunctions precluded within Europe. English courts will be unable to stop a party from creating delay by issuing court proceedings in another member state in breach of an arbitration agreement. However, English courts will still be able to grant anti-suit injunctions to restrain proceedings outside the EU and countries which are signatories to the Lugano Convention (Switzerland, Iceland and Norway). Other factors – not least location, language and neutrality – will usually be more important considerations when parties are deciding on an arbitration venue, but nevertheless, the ability to issue such anti-suit injunctions is an attraction to parties choosing arbitration. There are alternative courses of action available to parties faced with being dragged into proceedings by their counterparties. These include applying for a stay of the foreign proceedings under Article II of the New York Convention or commencing the arbitration regardless. That way if delay were the real purpose of the ‘rogue’ proceedings, an arbitral award may be delivered long before the foreign court reaches a decision.