Much is often made about arbitration as a preferable alternative to litigation as a form of dispute resolution. Its confidentiality, its flexibility and the relative ease with which arbitration awards can be enforced abroad are some of the cited benefits.
But those advantages are not always as significant as they appear. For example, confidentiality can disappear if an arbitration award is appealed in the courts - see our alert Arbitration Appeals - (how to avoid) washing your dirty laundry in public. Some question whether arbitration really is quicker than litigation, or indeed cheaper. Now, in a further development, the supposed sanctity of the arbitration clause has been given something of a dent.
If parties agree to arbitrate their disputes under a contract, one might expect both parties to abide by that process, even where the relationship has broken down and your opponent may no longer play by the rules. At the very least, if your opponent does not submit the dispute to arbitration but runs off to court, you might expect to be able to do something about that relatively quickly. So, for example, if your opponent starts court proceedings in England in breach of an arbitration clause, you can apply to stay those proceedings. If your opponent decides to start proceedings in the courts of another EU country in breach of that arbitration clause, the usual way to date of dealing with that has been to obtain an injunction in the English court restraining those foreign proceedings. It has not been necessary to get involved in the expensive, difficult and inconvenient task of applying to the foreign court to stop those foreign proceedings.
However, injunctions restraining foreign proceedings have recently fallen very much out of favour. The European Court of Justice has ruled several times in the last few years on whether it is open to courts of a member state of the EU to restrain proceedings brought in the courts of another member state. It has held emphatically that such injunctions are contrary to Council Regulation 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial matters (Brussels Regulation), even where the proceedings have been brought in breach of a chosen jurisdiction clause. The rationale is that member states must trust other member state courts to decline jurisdiction where appropriate. However, what had not been tested, until now, was whether it would be permissible to obtain an injunction restraining foreign proceedings which had been brought in breach of an arbitration agreement.
The House of Lords considered this in the case of Allianz SpA -v- West Tankers. Given the importance of the point, the House of Lords referred the matter to the ECJ and the Advocate General has recently given her opinion on the matter. Although that opinion is not binding, it is likely that the ECJ will follow it. The ECJ decision is expected within the next couple of months.
The Advocate General has opined that it is not permissible for a court of a member state to grant an injunction restraining foreign proceedings brought in breach of an arbitration clause. This is because the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides that courts that are seised of a matter are entitled to examine the validity or otherwise of any arbitration clause before they decide whether to stay their own proceedings. They would not be able to do that if an anti-suit injunction from another country was in force. Secondly, although arbitration proceedings are outside the remit of the Brussels Regulation, that does not mean that anti-suit injunctions restraining foreign proceedings brought in breach of an arbitration agreement are not within the ambit of the Brussels Regulation. In the Advocate General's view, the important issue was not whether the application for an anti-suit injunction falls within the scope of the Brussels Regulation, but whether the proceedings against which the anti-suit injunction is directed do so. Foreign proceedings are permitted if the Brussels Regulation allows them. It is up to that court to decide whether to allow those proceedings to continue.
What are the consequences of the West Tankers decision? Unfortunately (although one's view depends on whether you are claimant or defendant), this now makes an arbitration agreement less certain in the sense that the prospective defendant cannot be sure that its dispute will be resolved by arbitration either at all or without some preliminary, time consuming and potentially expensive skirmish in a foreign court. If a claimant goes to a foreign (EU) court in breach of an arbitration clause, the defendant cannot seek a quick solution by means of an anti-suit injunction but must go to the foreign court to obtain a stay of those proceedings. It will be risky for it to do nothing and assume the court will dismiss the action itself. But how far does the defendant get involved? If it does get involved, it risks submitting to the jurisdiction. The process could take some time. At best, it wastes time and money. At worst, the court assumes jurisdiction.
From the perspective of a potential claimant, it means that there is some scope to play a strategic game of taking a dispute which is the subject of an arbitration clause to a foreign court in order to obtain an advantage. Ultimately the foreign court may hear the matter, but even if it does not at the very least time and costs will be taken up in dealing with the matter which cannot be truncated by a foreign injunction.
All of that is either good or bad, depending on whether you are claimant or defendant! But one thing is sure, the certainty of the effectiveness of an arbitration clause is now just a little less certain.