On 10 December, the Council of EU Justice Ministers voted to adopt the revision of Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, otherwise known as the Brussels Regulation. Because the Council voted to accept the draft without any amendment, there is no need for a second reading. The text will be adopted, signed and published.
As reported in our previous blog posts (available here and here), the text of the revised Brussels Regulation effectively reverses the gradual encroachment of the Brussels regime into arbitration. It clarifies that there is an absolute exclusion of arbitration from the ambit of the Regulation. The key effect of this clarification is that:
- Each member state court has the right to refer parties to arbitration, stay or dismiss proceedings and examine whether an arbitration agreement is null, void or inoperative or incapable of being performed
- A member state court need not wait for the decision of another member state on the validity of an arbitration agreement, even if the question has been referred to that other court first
- In the event of a conflicting arbitral award and a member state court judgment, a member state may enforce the arbitral award (if considered valid) under the New York Convention in preference to the court judgment
- The scope of “arbitration” has been clarified to include court proceedings surrounding or in support of arbitration (such as establishment of tribunals, powers of arbitrators etc.)
- Whether arbitration is a principal or incidental issue will not matter, and it will still fall outside the Regulation.
The revised Regulation will take effect two years after it comes into force. Although, as described below, not all issues are ironed out, the amendments to the Brussels Regulation are certainly a positive step for arbitration and should give some comfort to parties that they no longer need to take steps to protect their arbitration agreements and awards by circumventing or mitigating the effects of the ECJ’s decision in West Tankers (Allianz SpA v West Tankers (Case C-185/07)).
West Tankers and the narrowing of the arbitration exemption
The revision of the Brussels Regulation (the Regulation) should bring about an end to some of the biggest hurdles presented by the ECJ’s (now known as the CJEU) West Tankers decision back in February 2009. This case is well-known for bringing about the end of anti-suit injunctions affecting proceedings within another member state of the EU. The ECJ held that the Regulation dictates that every court seised is entitled to determine whether it has jurisdiction to resolve the dispute before it. It is not open to a court of another member state to effectively deprive a court seised of the dispute of this right through grant of an anti-suit injunction. Further, the possibility of an anti-suit injunction runs counter to the trust which the member states accord to one another’s legal systems and judicial institutions and on which the system of jurisdiction under the Regulation is based.
However, the implications of the ECJ’s judgment were far wider. The ECJ held that “a preliminary issue concerning the application of an arbitration agreement, including in particular its validity, also comes within its scope of application“. This meant that any other member state court would be required to stay its proceedings pending a decision of another member state court who was first seised.
This narrow interpretation of the arbitration exception in the Regulation led to some undesirable results. For example, it enabled a party to disrupt or delay resolution of a dispute by starting a so-called “torpedo” action in one member state on the merits, claiming that a putative arbitration agreement was invalid. Whilst the other party could continue with an arbitration under the agreement and the tribunal could nonetheless determine its own jurisdiction, if the seat was in the EU, that party could not seek an anti-suit injunction to protect the arbitration agreement and stop the parallel proceedings. This led to an inevitable risk of inconsistent decisions on both jurisdiction and the merits. Any resulting judgment on the merits in the torpedo action would be entitled to recognition and enforcement (potentially before the tribunal had made an award). In order to try to head off this risk, some parties made a “pre-emptive strike”: for example, seeking a declaration from the courts of the seat as to the validity of the arbitration agreement, or seeking declaratory relief from the tribunal as quickly as possible and entering the award as a judgment on its terms, to prevent the recognition of any later inconsistent court judgment (under Art 34 of the Regulation).
The ECJ’s decision in West Tankers also placed member state courts in a difficult position due to possible conflict between their Brussels Regulation and New York Convention obligations. A member state court could be presented with a New York Convention award made under what that court considers to be a valid arbitration agreement, while at the same time being bound to recognise a judgment on the merits which had been made by another member state court which has decided the arbitration agreement is invalid.
The drafting process: coming up with the revised text
Reaching the final draft text on the question of arbitration was a long process, involving input from arbitration professionals across the EU. Various different suggestions were made, including providing for the court of the seat to have jurisdiction to determine the validity of an arbitration agreement and including an express reference to allowing anti-suit injunctions. The drafts ranged from the precise inclusion of arbitration into the Regulation with its own set of rules to the final version which will now be adopted – a clear exclusion. The final version relies on the regime set out in the New York Convention (to which all EU member states are signatories) and trusts in the abilities of the EU member state courts to navigate a path themselves.
The end result is a particularly “hands-off” approach for the EU. Every effort has been made to clarify that all matters related to arbitration should fall outside the Regulation. In so doing, the text directly enshrines the precedence of the New York Convention in the Regulation.
The effect of the new language
The revision makes it clear that a “torpedo” action is not going to prevent another EU member state from considering the validity of an arbitration agreement. Whilst a party may seek to start proceedings on the merits in, for example, Italy, claiming the arbitration agreement is invalid, this will not prevent the other party from asking the courts of the seat to refer the parties to arbitration.
The second clarification is that, even if the Italian court were to decide that the arbitration agreement was invalid, the court of the seat need not be bound by that decision, but can reach its own conclusion.
The clear problem with this is that there could easily be conflicting EU court decisions on the validity of an arbitration agreement. As a result, we could end up with an arbitral award and an inconsistent judgment rendered by a member state court, both of which should be enforceable in the court of the seat.
However, the language of the new Regulation seeks to address this problem. It expressly states that a court judgment by a member state on substantive issues (once that state has decided that an arbitration agreement is null and void or invalid) will be enforceable in accordance with the Regulation. However, it then goes on to state that this is without prejudice to the competence of the courts to decide on the recognition and enforcement of arbitral awards under the New York Convention “which takes precedence over this Regulation”. This language appears to allow the enforcing court to enforce the arbitral award (if considered valid under the NY Convention) and refuse to enforce the court judgment on the grounds of public policy under the Regulation.
Although this is a solid and welcome clarification in resolving this issue, there may well be some remaining issues. For example, a party may seek to enforce a court judgment while an arbitration is on-going, but no award has been made. In this situation, there will be no award to enforce “in preference” to the court judgment. The language will also provide no comfort to a party who wishes to enforce an award under the New York Convention in the courts where the inconsistent judgment was made. In this case, there would be little chance that those courts would reach any other decision than to uphold the court judgment, rule that the arbitration clause was invalid and refuse to enforce the award.
Anti-suit injunctions back on the menu?
Finally, we come to the thorny issue of anti-suit injunctions. If the new language puts us back to where we were pre-West Tankers, does that mean it is now open season on anti-suit injunctions within the EU?
Well, first, we need to look at whether we actually need them. Now that the Regulation makes it clear that each member state can consider the validity of an arbitration agreement and is not required to abide by the ruling of another member state, a foreign court action is no longer the weapon it once was. It will no longer effectively “torpedo” an arbitration. An opponent should now be free to choose whether or not to enter an appearance to contest the court’s jurisdiction, or simply ignore the proceedings and pursue the arbitration, relying on a member state’s right to apply the New York Convention over and above the Regulation on enforcement. However, many clients and practitioners would still far prefer the certainty and weight of an English court injunction against their counterparty.
Assuming that we would like to use them, are we now allowed to do so? Well, the revised wording seeks to broaden the scope of “arbitration”. If an English court issued an anti-suit injunction, it would seem likely that those English proceedings and any other member state proceedings on the question of the validity of an arbitration agreement would fall outside the scope of the Regulation. This might at first glance suggest that an anti-suit injunction would be permissible. However, the revised wording also expressly confirms the right of each court to consider the question of validity. It does not reserve that decision solely to the courts of the seat. Indeed, this is a point which was addressed in some detail in the West Tankers judgment where the ECJ said “Every court seised is therefore entitled, under the New York Convention, before referring the parties to arbitration to examine those three conditions [under Article II(3) of the NYC]. It cannot be inferred from the Convention that that entitlement is reserved solely to the arbitral body or the national courts at its seat“. Given the express reference to the New York Convention within the Regulation, we can assume that this interpretation is followed.
Furthermore, we also need to consider the intention behind the formulation of the Brussels Regulation in the first place. The general concepts elucidated in the Gasser (Case C-116/02 Gasser (2003) ECR I-14693) and Turner (Case C-159/02 Turner (2004) ECR I-3565) cases (those of mutual trust between the courts of the members states and that each court should be allowed to rule on its own jurisdiction) still hold. As the ECJ stated in West Tankers “an anti-suit injunction… runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions“.
Given the rationale behind the Regulation and, more broadly, the entire European project, there is nothing here to indicate that this revision is intended to bring back the anti-suit injunction. Attempts to introduce language allowing for anti-suit injunctions were removed from the final drafting and the right for every court to decide on the validity of an arbitration agreement is very clearly set out. This may not prevent someone trying their luck in the English courts, but those attempts do not seem likely to get very far. Barring clarification by the CJEU to the contrary, the anti-suit injunction within the EU may still be a thing of the past.