In our August 2009 edition of the Commercial Litigation Review View>>, we analysed the decision of the European Court of Justice (ECJ) in West Tankers in which it was held that the courts of a Member State first seised must decide whether they have jurisdiction despite an arbitration agreement between the parties (and so the English courts cannot grant an anti-suit injunction to restrain proceedings in that Member State). The impact of the West Tankers decision has been further analysed in the recent Court of Appeal decision of National Navigation Co v Endesa Generacion SA [2010] 1 Lloyd's Rep 193, in circumstances where, the claimant sought to uphold a London arbitration clause and English law as the applicable law and the defendant asserted that the Spanish courts had jurisdiction and that Spanish law applied to the issues in dispute.

The Facts

National Navigation Co (National) was the owner of a vessel that transported cargo owned by Endesa, a Spanish company, under the terms of a bill of lading which purported to incorporate the terms of the charterparty. The head charter and the voyage charter contained provision for disputes to be referred to arbitration in London, and the head charter was expressed to be subject to English law.

A dispute arose when National discharged the cargo at a port other than the contractual port of discharge. Endesa sought an order to arrest the vessel before a Spanish Court. At the same time, National issued proceedings in the Commercial Court in London arguing that the English courts had jurisdiction and seeking a declaration of non-liability to Endesa. Endesa then lodged a claim for damages before the Spanish Court. National challenged the jurisdiction of the Spanish court, asserting that English law applied and therefore the bill of lading had validly incorporated the London arbitration clause in the charterparty. The Spanish Court held that Spanish law was the correct law to apply to determine its jurisdiction and as a matter of Spanish law, the charterparty was not incorporated into the bill of lading. However, the Spanish Court granted a stay to permit the Commercial Court in London to determine its jurisdiction.

Before the Spanish court made its judgment, National had commenced arbitration in London against Endesa under the bill of lading and had issued another set of proceedings in the Commercial Court to obtain a declaration that the arbitration clause was validly incorporated into the bill of lading and an injunction to restrain Endesa from proceeding with its claims other than by arbitration. Mrs Justice Gloster heard both sets of proceedings but just before she was due to issue her judgment, the ECJ issued its decision in West Tankers.

First Instance Decision

Gloster J found in favour of National in its application for a declaration as to the applicability of the arbitration agreement but did not, in light of West Tankers, agree to the request for an anti-suit injunction.

She held that although the Spanish judgment fell within Council Regulation 44/2001 (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) (the Regulation), it was not binding on the arbitration proceedings before her as those proceedings fell outside the Regulation, by virtue of Article 1(2)(d).

The Decision of the Spanish Court Did Not, therefore, apply.

She also held that recognising the Spanish judgment would be manifestly contrary to UK public policy, which requires UK courts to give effect to valid arbitration agreements. Therefore, she was entitled to examine whether the arbitration agreement was validly incorporated into the bill of lading and concluded that it was under English law.

This decision was seen by many to limit the ruling in West Tankers and, unsurprisingly, Endesa appealed.

Decision on Appeal

The Court of Appeal overturned the decision of Gloster J and unanimously upheld the appeal. Its findings were as follows:

  • The Court of Appeal disagreed with Mrs Justice Gloster's view that the UK Court was not bound by the Spanish judgment. Lord Justice Waller stated that although it may be arguable that a Regulation judgment was not automatically binding in non-Regulation proceedings under article 33 of the Regulation, such a judgment (being a decision on the same issue as the arbitration proceedings) could still give rise to an issue estoppel. This, he said, was sufficient to require the recognition of the Spanish judgment. Furthermore, he was of the view that section 32(4) of the Civil Jurisdiction and Judgments Act 1982 envisaged such recognition even where the judgment has been given in proceedings commenced in breach of an arbitration agreement.
  • Lord Justice Moore-Bick held simply that the Spanish judgment was made in proceedings within the scope of the Regulation and should have been recognised under article 33(1) of the Regulation.
  • On the issue of public policy, the Court of Appeal held that Mrs Justice Gloster should not have raised any public policy grounds to refuse recognition and it was not contrary to public policy to recognise a foreign judgment of a dispute which an English court would have decided differently.  

Comment

Gloster J's first instance decision was controversial and it was widely anticipated that it would be overturned by the Court of Appeal, particularly to bring the decision in line with the reasoning in West Tankers.

It is now clear that even where English proceedings are not themselves within the ambit of the Regulation (i.e. arbitration proceedings) if a judgment has been made by the court of a Member State, in relation to a dispute the substance of which falls within the Regulation, the judgment should be recognised in accordance with the Regulation.

Future Development – Commission Green Paper

This decision emphasises the need to amend the Regulation to ensure that agreements on jurisdiction by the parties are given full effect, particularly in the context of encouraging international commerce. The avoidance of parallel proceedings is also considered a key focus.

One suggestion proposed by the European Commission is to give priority to the courts of the Member State of the arbitral seat to determine the existence, validity or scope of an arbitration clause. If the arbitral seat cannot be determined from the arbitration clause itself or from a decision of the arbitral tribunal, the courts of the Member State which would have jurisdiction over the dispute under the Regulation in the absence of an arbitration agreement would then have jurisdiction. This seems a happy medium between the UK position (rejected by the ECJ in West Tankers) which favoured granting exclusive jurisdiction to the court of the Member State where the arbitral seat was situated and the continental approach adopted in West Tankers. The Green Paper Consultation is on-going.