West Tankers Litigation Course Work Example

West Tankers Litigation Course Work Example

The West Tankers litigation, especially the decision of European Court of Justice, has raised many questions as to the issue of enforceability of arbitration agreements in EU Member States. The Court, by its decision, has extended the scope of application of the Brussels regulation to the arbitration agreements, and precluded English courts from issuing of an anti-suit injunction aimed at prevention of any judicial proceedings in other Member State when such proceeding clearly violates the arbitration agreement. In the following article, I would like to contemplate on the possible consequences of the court`s ruling as to the enforceability of arbitration agreements in the European Union, the future of anti-suit injunctions, as well as to discuss the effect of the arbitration exception of the newly adopted Recast Regulation No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

Anti-suit injunctions and ECJ`s ruling

In English courts, anti-suit injunction has for a long time served as an effective tool against parallel proceedings in regard to the same dispute. The court may issue an order which bars the respondent from pursuing of any claims in the court of a foreign country if this proceeding is commenced in breach of the existing arbitration agreement. The purpose of such order is to avoid situations when one party abuses its procedural rights, and in bad faith files a lawsuit into one of the state courts in order to delay the examination of the case on its merits.

Among a series of court`s decisions in the long-running West Tankers litigation, the ruling of the European Court of Justice prohibiting English court to issue anti-suit injunctions, was perhaps the most controversial. The Court, in its decision, mainly referred to the provisions of the Brussels regulation which concern the problem of jurisdictional disputes which contain the foreign element. The Court applied the rule which is set forth in the Article 27 of the regulation: if the proceedings with the same parties and on the same cause of action are brought before the court of two or more Member States, the court which “second-seized” the dispute has the obligation to defer any proceedings until the first-seized court adjudicates on its own jurisdiction in the given case. However, the same regulation clearly provides that it shall not be applied to arbitration. The reasoning behind the court`s decision lies primarily in the desire of the members of the court to preserve the “spirit” of the regulation, i.e. to promote harmonization and unification of rules relating to the jurisdiction in matters with “foreign elements”.

Thus, the court placed a higher value on the importance to preserve a general approach to the problem of jurisdiction, rather than on the fact that the same regulation does not even extent to the matter of the arbitration. The court also noted that issuing of anti-suit injunction by the English court would interfere with the ability of the Italian court (where the case was initially brought) to rule on its own jurisdiction, which directly contradicts the main provisions of the regulation and seriously undermines the overall significance and effectiveness of the regulation. The ECJ stated that such injunctions employ an unfair practice which compromises the principle of mutual trust between Member States in the judicial sphere. Another point that was taken into the account, is that EU`s courts authority to rule on the validity or enforceability of the arbitration agreement, due to the importance of such issues, must not be undermined by tools like anti-suit injunctions, especially if they come from a foreign sovereign. If the foreign court were forced, by the mean of anti-suit injunction, to leave the matter without consideration, it would practically amount to the violation of the Regulation provision which authorizes the same court to freely rule on the matter of its own jurisdiction (doctrine of competence-competence). The ECJ in its holding warns against the situations where an applicant who claims that an arbitration agreement is void or inoperable may be eventually barred from access to the state courts, again, due to the effect of anti-suit injunction.

Thus, in its final judgment on the case, ECJ confirmed that the use of anti-suit injunctions by English court in the following case would constitute a violation of the provisions of the Brussels regulation. If the case with the same parties and with the same cause of action is already pending in the court of the Member State, the court of another Member state must refrain from any actions which would interfere with another court`s proceedings on the case, including the question of a relevant jurisdiction. The main consequence of that decision is that the anti-suit injunctions can no longer be issued in Member States in order to prevent proceedings even if those proceedings directly contradict the arbitration agreement. This decision made practitioners and scholars contemplate on new ways and methods which would effectively enforce arbitration agreements.

Declaratory awards

One of the ways to enforce an arbitration agreement instead of anti-suit injunctions is the method of declaratory awards granted by arbitration tribunals. The declaratory award is a court`s judgment that is aimed to resolve legal issues that are uncertain or issues that need to be ruled on. Those awards mainly concern the issues of interpretation of the terms of the contract, the question whether a certain event falls within the scope of the contract, whether the terms of the contract have been complied with in a given case. Other declaratory awards may concern the issue of whether the party alleged of the breach of the contract is liable, and if the arbitral tribunal has a proper jurisdiction to decide the case. Even though such declaratory awards are binding for the parties, the question as to their recognition and enforcement may still remain open.

Declaratory awards have become widely used in the sphere of international commercial arbitration due to the simplified procedure of adjudication: the court, at the request of the party, enters into a judgment on a particular question and resolves that issue without the need to resort to what might be like a long-running litigation. Often the parties who have solid contractual relations are willing not to involve themselves into the litigation and ask the tribunal to rule a declaratory award on a particular issue (e.g., establish the fact of the breach of the contract), instead of seeking an actual monetary compensation. As it was shown in West Tankers, such awards may be entered as a judgment and subsequently they may be enforced as a judgment.
The method of declaratory awards instead of anti-suit injunctions has been used in West Tankers litigation, following the ECJ`s ruling. West Tankers chose to enter a declaratory award claiming that they are not liable to insurers for the damages, pursuant to s.66 of the Arbitration Act which state that an award of the arbitration tribunal may, by leave of the court, enforced as a judgment or order of the court. London High Court in April 2011 recognized that such an award may be enforced, and the Court of Appeals in 2012 confirmed that the court has the authority to enter the judgment under the terms of a declaratory award pursuant to the section 66 of the Act. Toulson L.J, in his separate opinion, has fairly noted a practical significance of such tool as a declaratory award in West Tankers case.

He stated that the owners in a given case, by enforcing of the declaratory award, wanted to safeguard themselves from the possible decision of the Italian court that might be contrary to the favourable award of the arbitration. The owners (West Tankers) were willing to use the arbitration award as an additional argument that would oppose the potential decision of the Italian court. Moreover, the provisions of the Brussels regulation and New York Convention establish a regime of mutual recognition and enforcement of judgments between the contracting states, provided that such recognition does not obviously contradict public policy of the state where the recognition or enforcement is sought, or that this judgment does not directly contradict to the decision that was adjudicated in the same dispute in the state where the recognition is sought. Although the method of recognition of declaratory awards may not seem as effective as the use of anti-suit injunctions, such method has relatively high chances of success, especially considering the existing treaties and regulations which obligate the states to recognize and enforce arbitration judgments that were adjudicated in foreign countries. On the other hand, courts of the foreign states still preserve the right to deny the recognition of such judgments, particularly if such recognition or enforcement violates a public policy reservation. In any case, the use of declaratory awards seems to be the most effective way to uphold the interests of the party which claims that the jurisdiction was wrongly allocated in the arbitration case, especially in a situation when the use of anti-suit injunctions is excluded from the arbitration practice within the European Union.

Recast Regulation

Following the ECJ`s decision on the prohibition of anti-suit injunctions, and considering a highly controversial application of Brussels Regulation 44/2001 in a given case, it was decided that the latter regulation needs to be revised and amended in order to address, inter alia, the issues of arbitration. As a result, the new regulation was adopted by the Council on December 6, 2012. New regulation has preserved the position that the latter shall not be applied to the matters of international commercial arbitration, as there are valid international instruments, like 1958 New York Convention and the 1961 Geneva Convention on International Commercial Arbitration, which effectively deal with matters of international commercial arbitration. During the negotiations which regarded the arbitration exclusion, it was proposed to incorporate Article 29.4 which prescribed the following rule: if the court of the Member State hears the dispute and the jurisdiction of that court is contested on the basis of the existing arbitration agreement, the court is bound to cease any proceedings if a) an arbitration tribunal convened to hear the dispute, b) court proceedings have already commenced in the State of the seat of the arbitration. Even though that particular proposition does not directly mentions the ”renewal” of the anti-suit injunction in the European arbitration, the purpose of the proposition is in a way similar to the effect of the injunction i.e., to cease any court proceedings which were commenced in violation of the arbitration agreement. At the same such provision provides a more subtle way to resolve jurisdictional disputes in the sphere of arbitration, unlike anti-suit injunction which is often seen as a direct interference with the jurisdiction of a foreign court. Unfortunately, this proposition was not approved by the European Parliament. Basically, the changes of the arbitration exclusion were limited to more elaborate wording of the recital 12. The recital states that the regulation does not apply to the arbitration.

The courts of the Member States preserve their jurisdiction to rule on the “fate” of the arbitration cases: the court may refer the parties to an arbitration or to rule on the validity of the arbitration agreement. The second paragraph of the recital states that the ruling of the Member State court on the question of the validity of the arbitration agreement is not subject of this regulation, therefor such decision cannot be enforced or recognized according to the rules of this regulation; the question of whether the decision of the court on the validity of the arbitration agreement should be recognized is left at the discretion of the court of another Member State (the state where the recognition is sought). The primary effect of these provisions is that they indirectly acknowledge the possibility of parallel proceedings on the same subject matter; although the “first-seised” court has the right to rule on the validity of the arbitration agreement, such ruling is not legally binding for the Member State where the seat of arbitration is located and the arbitration tribunal may still commence relevant proceedings despite the decision of that court. The recital also states that in the question of recognition and enforcement of arbitral awards, the New York Convention on the recognition and enforcement of foreign arbitral awards takes precedence over the Regulation.

As we can see, in the following case the legislators decided to take a middle ground and balance the interests of national courts (interests that refer to the determination of jurisdiction) and the interests of the party which is seeking a defense according to the arbitration agreement. The negative effect of such provisions is that it implies the possibility of parallel proceedings both in state and arbitration courts. The positive effect of the regulation is that it substantially strengthens the authority of arbitration tribunals and establishes a prevalence of the New York Convention, which in practice means that the arbitration award will most likely prevail over the court`s decision. As to the question of anti-suit injunctions, nothing in the new regulation indicates that such tools may again be used by the English courts, and most likely the parties will be forced to resort to alternative methods of arbitration agreement enforcement, e.g. by the means of declaratory awards.

Conclusion

The ECJ`s ruling in West Tankers has practically put an end to the practice of issuing of anti-suit injunctions in order to enforce arbitration agreements in EU Member States. One of the potential alternatives to the anti-suit injunction is declaratory awards of arbitral tribunals that may be used in order to enforce arbitration agreements. Although this method is not as effective as anti-suit injunctions, it still may be used in order to uphold procedural rights stipulated by the arbitration agreement. Recast Regulation that will be effective since 2015 although does not revive the use of anti-suit injunctions, provides for a limited application of the regulation to the matters of international commercial arbitration and indirectly gives a wider authority to arbitration tribunals.

References

– Zadkovich, Roberts, West Tankers 2012: Pro-Arbitration through Enforcement of Declaratory Awards. International Arbitration Law Review
– REGULATION (EU) No 1215/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 2012, Official Journal of the European Union
– The proposal for reviewing the Brussels Regulation and the new Regulation No. 1215/2012 after the West Tankers decision: a new step back for arbitration?, Kluwer Arbitration Blog, 2013
– Wolff, Tanking arbitration or breaking the system to fix it? A sink or swim approach to unifying European judicial systems. The ECJ in Gasser, Turner and West Tankers. The Columbia Journal of European Law Online, vol.15, 2009.
– Beckstead, The Continuing Saga of West Tankers, Arbitration Law Blog, 2012.
– Ippolito, Adler-Nissen, West Tankers revisited: has the new Brussels I Regulation brought anti-suit injunctions back into the procedural armoury? 2013
– Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
– Arbitration Act 1996.
– West Tankers Inc v Allianz SpA and another [2011] EWHC 829 (Comm); [2011] 2 All E.R. 1

Leave a Reply

Your email address will not be published. Required fields are marked *