Summary

A recent Commercial Court decision confirms there is a way to deal with parties who seek to frustrate an arbitration agreement by starting court proceedings in countries within the EU. The decision in African Fertilizers and Chemicals NIG Ltd v. BD Shipsnavo GmbH & Co Reederei KG1 supports the earlier decision in the now infamous West Tankers2 case. In short, it confirms that a declaratory award by an arbitral tribunal may be enforced as a judgment by the English court and used to resist later inconsistent judgments from other EU courts.

West Tankers

In proceedings relating to West Tankers, the European Court of Justice refused to endorse an anti-suit injunction granted by the English courts against the defendant, who had started proceedings in Italy in breach of an arbitration agreement. This left open the possibility that parties seeking to delay or undermine arbitration proceedings could do so by commencing litigation elsewhere in the EU in the knowledge they could not be prevented from doing so by a foreign court. This is because, under EU law, courts of member states are entitled to rule on their own jurisdiction. Since then parties have been seeking a solution to this problem.

The claimant in West Tankers commenced and continued arbitration proceedings in London, obtaining an award in its favour. In the Commercial Court it succeeded in enforcing a declaration of non-liability in the award as a judgment. The order was enforced on the basis that the claimant's objective was to show the primacy of the declaratory award over any later inconsistent judgment of the Italian courts. The African Fertilizers v. Shipsnavo follows this reasoning and in so doing confirms this as a strategy open to parties seeking to enforce arbitration agreements. It also confirms that the judgment will be recognised under the Brussels Regulation (which governs the recognition and enforcement of judgments within the EU) and will therefore trump any later judgment from another EU court.

Strategy

The Commercial Court’s judgment means that, when faced with a party that fails to take part in an arbitration and issues proceedings elsewhere in the EU instead, you should:

  • contest jurisdiction in the foreign court;
  • start/continue arbitration proceedings anyway;
  • seek an arbitral award in your favour as soon as possible, even if it is just a declaration that an arbitration agreement exists; and
  • enforce it as a judgment in the English court before the other party obtains an inconsistent judgment from a foreign court, thereby taking advantage of the Brussels Regulation.

Further Developments

West Tankers is under appeal and will be heard on 21 November 2011. It will be interesting to see whether the Court of Appeal upholds the Commercial Court's judgment. In addition, the Brussels Regulation is currently under review and is likely to be revised in the near future. The European Commission has published a draft legislative proposal, and the final form may well provide a solution in itself to the problems arising out of West Tankers. We will analyse these developments in future alerts.