Where a party starts court proceedings in violation of an arbitration agreement, it may be possible for the other party to apply to that court for dismissal of the proceedings.
CURIAL ANTI-SUIT INJUNCTIONS
An alternative is to apply to the court where the arbitration should be seated for an anti-suit injunction restraining the party from continuing the litigation. However, as explained below, this is probably not possible if the court where proceedings are commenced and the court where the injunction is sought are both in the EU.
This does not mean a party is powerless if litigation is commenced against it in violation of an arbitration agreement. Various options are set out below. However the situation is complex, and best understood from an explanation of how it has developed over time.
The old Brussels Regulation
Questions of jurisdiction and enforcement of judgments between EU countries are governed by the Brussels Regulation.
This Regulation contain a “lis pendens” rule: that, if proceedings in related disputes are brought in the courts of different Member States, the later-commenced proceedings must be stayed until it is established whether or not the court first seised has jurisdiction.
On its face, this rule prevents application for an anti-suit injunction in one Member State to restrain litigation which has already started in another.
However, an unintended consequence of the rule has been that those who fear an arbitral claim against them frustrate it by commencing their own spurious related claim in a country with slow-moving courts which will take years to determine their own (lack of) jurisdiction; the so-called “Italian Torpedo”.
Therefore, the English courts tended to grant anti-suit injunctions anyway, relying on Article 1(2)(d) of the old Brussels Regulation, which said the Regulation did not apply to arbitrations.
This was slightly opportunistic, as the reason for this “arbitration exception” was on the enforcement side, not the jurisdiction side of the Regulation. Arbitral awards are readily enforceable under the New York Convention, and the drafters of the Regulation did not want to interfere with that.
The practice of granting anti-suit injunctions was stopped after the 2009 decision of the European Court of Justice in Allianz v West Tankers where, in reply to a question from the English courts, the ECJ confirmed that such injunctions were inconsistent with the Regulation.
However, this was not the end of the matter. West Tankers continued its arbitration and, in a 2012 decision, the English Court of Appeal upheld its ability to enter court judgment against Allianz in the terms of the arbitral award. Thus West Tankers got its judgment.
Furthermore, the Brussels Regulation does not require the courts of one Member State to recognise the judgment of another which is irreconcilable with one of its own, so any future judgment in the Italian litigation risked being unenforceable in England or any other Member State in which West Tankers applied for judgment in the terms of the award.
Moreover, in a second 2012 decision, Flaux J confirmed that an arbitral tribunal could award damages or an indemnity where foreign proceedings were commenced in breach of an arbitration agreement, thus negating any conflicting foreign judgment.
The Recast Brussels Regulation
On 10 January 2015, the new Recast Brussels Regulation came into force.
Recital 12 of the Recast Regulation clarifies the scope of the “arbitration exception” and, in doing so, takes further steps to undermine the Italian Torpedo.
- It confirms that the New York Convention takes precedence over the Regulation, so Member States may enforce arbitral awards even if they are inconsistent with a judgment of another Member State.
- It says that the courts of any Member State can refer the parties to arbitration, and clarifies that the Regulation does not apply to any proceedings concerning the establishment or conduct of that arbitration.
- It provides that the courts of any Members State can rule on the validity of an arbitration agreement, and need not recognise rulings of other Member States on that issue. This reverses part of the 2009 ECJ decision in West Tankers, which said questions of validity came under the Regulation and were, therefore, another issue falling exclusively to the court first seized. The Recast Regulation thus removes a potential tactic to torpedo the operation of (a) and (b).
In summary, curial inter-EU anti-suit injunctions remain unavailable, but Recital 12 includes a number of measures to bolster arbitration; enabling the defendant in the litigation to apply for an order referring the parties to arbitration which, whilst it may be parallel to the litigation, should render a judgment earlier if the torpedo jurisdiction was chosen for its slowness.
A straightforward solution – which was proposed in debate before the recasting – would have been to give the courts of the arbitration’s seat jurisdiction to determine the validity of the arbitration agreement regardless of first seisure, and to permit anti-suit injunctions against parallel proceeding elsewhere.
Indeed, this is effectively what the Recast Regulation does where proceedings are brought in violation of an exclusive jurisdiction clause. There is a new exception to lis pendens giving the chosen court priority regardless of which court was first seised.
However, this approach was not adopted for proceedings in violation of an arbitration agreement so, instead of a simple solution, the Recast Regulation bolsters arbitration with a fresh wave of complexity.
In a final twist, Advocate General Wathelet recently issued an Opinionin the case of ‘Gazprom’ OAO in which he suggested that the Recast Regulation overturned West Tankers, and that inter-EU anti-suit injunctions were once again possible. However, it is not clear that this opinion is correct, and the subsequent Judgement of the Court of Justice decided the case on the old Regulation, so the matter must remain unresolved for now.
ARBITRAL ANTI-SUIT INJUNCTIONS
However, the Court of Justice decision in Gazprom did uphold the ability of arbitral tribunals to award inter-EU anti-suit injunctions. In this regard therefore, a tribunal has greater power than the courts of the country in which it is seated.
The Gazprom case concerned the anti-suit injunction of a Stockholm-seated arbitration restraining court proceedings in Lithuania. The Court of Justice held that the enforceability of the injunction was to be determined by reference to the laws of the seat and consequent operation of the New York Convention.
Thus, the injunction fell outside the Brussels Regulation. In this regard, the Court observed that arbitral tribunals were not subject to the mutual trust between Member State courts on which the Regulation is founded.
Arbitral anti-suit injunctions are not a universal panacea to the problems of West Tankers. The party which has commenced the foreign proceedings may not cooperate in the establishment of the tribunal. Even if the tribunal is established, and assuming it has the power to order injunctions, it may not wish to exercise that power to force a recalcitrant party to arbitrate.
Nonetheless, an arbitral injunction is another option to consider for a party faced with court proceedings in violation of an arbitration agreement.