In our recent newsletter we reported on the opinion of the Advocate General of the European Court of Justice (“ECJ”) delivered on a question referred to the ECJ by the House of Lords earlier in 2008 in the case of the “Front Comor” concerning the use of anti-suit injunctions by the English Courts to protect arbitration agreements. The ECJ has now given its judgment in this matter and, as was widely expected, this judgment maintains the view that anti-suit injunctions are incompatible with the Brussels Regulation (Regulation 44/2001 dealing with the allocation of jurisdiction between Members States of the EU).
The “Front Comor” struck a jetty at a Syracuse oil terminal whilst under charter to Erg, also the jetty owners. The charterparty was governed by English law and was subject to arbitration in London. Erg claimed on its insurance up to the policy limits and then began arbitration against the Owners of the “Front Comor” (“Owners”) for the balance of the damage. Erg’s insurers then commenced proceedings against Owners under Italian law before an Italian court to recover the payments made to Erg.
The Italian court had jurisdiction over the insurer’s claim under the Brussels Regulation. However, Owners applied to the English court for an anti-suit injunction on the grounds that the dispute arose out of the charterparty, which contained an arbitration agreement, and that the insurers were therefore bound by that. The English High Court and House of Lords agreed with Owners that the proceedings in Italy did arise out of the charterparty and the insurers were bound to refer their dispute to arbitration.
From the English perspective, therefore, the action by Owners was to protect a right to have disputes referred to arbitration, the subject matter of those proceedings was arbitration and the matter therefore fell outside the scope of the Brussels Regulation, which excludes arbitration proceedings from its effect.
The ECJ’s decision
The ECJ has agreed with the English Courts that the subject matter of the proceedings is determined by the nature of the rights which those proceedings serve to protect. In this case the proceedings before the English Courts were for an injunction intended to protect Owners’ right to have claims against them brought in arbitration. The ECJ therefore held that the proceedings in England could not come within the Brussels Regulation. So far so good.
Despite this, the ECJ went on to hold that even though the proceedings were outside the Brussels Regulation, they could have consequences that undermine it.
The objective of the Brussels Regulation is unification of rules between Members States on conflict of jurisdiction and the free movement of decisions of national courts. This objective can be undermined by proceedings in one state that prevent a court in another Member state from exercising the jurisdiction it has under the Brussels Regulation.
Here it was not in dispute that the Italian Court had jurisdiction to hear the insurers’ claim. The argument from Owners was that the insurers should discontinue that action and proceed in arbitration as they were bound by the arbitration agreement in the charterparty.
The proceedings in Italy, even though arguably brought in breach of an arbitration agreement, were to recover damages and were therefore within the scope of the Brussels Regulations. Therefore, in the ECJ’s view, which echoed that of the Advocate General in this respect, a preliminary issue as to the applicability of the arbitration agreement in a charterparty comes within the scope of the Regulation. It is therefore for the Italian Court alone to rule on any objection to the Italian jurisdiction on the basis of the arbitration agreement, which would include the question of the validity of that agreement.
The decision from the ECJ will effectively end the use of anti-suit injunctions by the English Courts where the proceedings that are brought in breach of the arbitration agreement are in another EU Member State. For a number of years these injunctions have been an effective remedy for parties to ensure that the method of dispute resolution, and the applicable law, that they have agreed on is applied. Now, litigants may find that they have to deal with the courts of another country, and that country’s law, before they can get to arbitration.
The ECJ views anti-suit injunctions as contrary to the trust that Members States of the EU must give to each other’s legal systems. That trust can be justified where each state is applying the same rules. However, if a court is asked to rule on its own jurisdiction on the basis of an allegation that there is an arbitration agreement, it will apply its own rules of procedure and national law to that decision. The rules relating to the validity of arbitration agreements have not been harmonised between Members States. This means that the criteria for the Italian Court in deciding whether, in this case, the arbitration agreement is valid, and whether the insurer is bound by it, are not necessarily the same as those that would be applied in England, or indeed in any other Member State. The relevant court would also apply its own procedure and the time taken for this can vary greatly between different jurisdictions.
The ECJ has taken the view that an anti-suit injunction would strip the court that has jurisdiction of its power to rule on that jurisdiction under the Brussels Regulation. This ignores the fact that such injunctions are given against defendants and aim to compel the individual to discontinue its own wrongful act of proceeding in breach of an arbitration agreement. The injunction is not directed to the court in which the defendant has brought its claim, nor does it purport to ask that court to refuse to hear the defendant. Rather the defendant is told that if he persists in bringing a claim otherwise than in accordance with an arbitration agreement then he will be subject to penalties for contempt of the English Court.
At the end of its opinion, the ECJ has stated that it finds support for its conclusion in the New York Convention, which provides that if a claim subject to an arbitration agreement (that is valid and capable of being performed) is brought before the courts of signatory states then that court will, if asked to do so, refer the parties to arbitration. This comment would appear to open the possibility that litigants in states outside the EU may seek to use the ECJ’s reasoning to argue that an anti-suit injunction against them infringes against the New York convention and the principle underlying that. Whilst the principles of mutual trust and cooperation in the EU do not necessarily underpin other international conventions in the same way, the possibility of the point being taken by analogy to this case remains.
The effect of the decision
The ECJ’s judgment will not affect the parties’ right to have their arbitration agreements upheld where the competing court is outside the ambit of the Brussels Regulation/Lugano Convention. It may have an impact within the EU insofar as a challenge to the referral of a dispute to the agreed arbitration process will now be determined by the court where the proceedings challenging such arbitration are taking place. This does not automatically mean that arbitration clauses will not be upheld. Two recent decisions before the French Court of Cassation have stressed the binding nature of arbitration agreements. However, other jurisdictions have a different approach.