London waiting

Date: 20 February 2009
Authors: Stephen Friel, Ceri Jones
Issue: Vol 159, Issue 7357
Categories: Features, Legal services, EU, Profession

Has West Tankers pushed London down the arbitral pecking order? Ask Steven Friel & Ceri Jones

Arbitration in England, governed by the Arbitration Act 1996, has gone from strength to strength over the last decade. However, London’s reign as arbitration capital may be under threat after last week’s European Court of Justice (ECJ) ruling in West Tankers that it was inconsistent with EC reg 44/2001 (the successor of the Brussels Convention) for a court of a European member state to make an order (commonly known as an anti-suit injunction) to restrain a person from commencing or continuing proceedings in another member state on the ground that such proceedings are in breach of an arbitration agreement.

The effect of this ruling is that even where a contract provides for arbitration in London and is subject to English law, if proceedings arising out of that contract are brought in the court of another European member state, the arbitration in England will have to wait until the proceedings in the foreign court have been stayed or jurisdiction has been declined by that court.

How it all began

West Tankers concerned the collision of a vessel owned by West Tankers and chartered to Erg Petroli SpA (Erg), and a jetty owned by Erg in Syracuse. The charterparty between West Tankers and Erg was governed by English Law and provided for arbitration in London. Erg was insured by Allianz SpA, which paid the claim made by Erg and commenced subrogated proceedings against West Tankers before an Italian court, to recover the amounts they had paid out under the insurance policy. West Tankers commenced proceedings in England seeking a declaration that, as the insurers were pursuing Erg’s claim by virtue of the principle of subrogation, they were bound by the arbitration clause in the charter party. They also sought an injunction to restrain the insurers from taking any further steps other than by way of arbitration including requiring them to discontinue the proceedings in Italy.

In March 2005 the High Court granted the declaration and the injunction. Allianz appealed on the basis that the injunction was incompatible with reg 44/2001, and the appeal was fast-tracked to the House of Lords (bypassing the Court of Appeal).

Allianz’s position on appeal was that reg 44/2001 provides that, when the court of one European member state becomes seised of a matter, all other European courts must not allow the same matter to proceed until the court first seised has ruled, even if the proceedings first seised have purportedly been brought in breach of a jurisdiction agreement.

The House of Lords considered the issue important enough to be referred to the ECJ. Both the initial advocate general’s opinion and the final ECJ ruling rejected the use of anti-suit injunctions in support of arbitration agreements, finding that they are incompatible with reg 44/2001. Th e rationale for the ECJ’s ruling is that the courts of member states must trust the courts of other member states to apply jurisdictional rules correctly.

The anti-suit injunction was viewed by many as a pragmatic solution to prevent disputes from being delayed in a foreign court where the contract clearly provided for arbitration in the UK. The key benefits of such injunctions were the speed with which the English courts can decide upon the issue of jurisdiction and the ability to have the debate over jurisdiction in English rather than a foreign language without the need to instruct legal advisers in another country. Without the tool of an anti-suit injunction available to the English courts, it has been said that there may be an increase in the number of parties issuing proceedings, for tactical reasons, in other member states in breach of an English arbitration clause. The question of jurisdiction will now have to be heard in that foreign member state, which may not deal with issues as swiftly as the English courts and may increase legal costs by requiring parties to instruct an second set of legal advisers abroad and in the translation of court documents and correspondence.

In consequence, concerns were expressed by lawyers that if the anti-suit injunction remained an available remedy in other jurisdictions outside the European member states, then arbitral seats such as New York or Singapore would become more popular than London, if London was no longer capable of making such orders.

Exaggeration?

However, there are also a number of people within the London arbitration community who consider that the effect of losing the ability to issue anti-suit injunctions has been grossly exaggerated and that London’s popularity as a set for international arbitration will not be diminished by the ruling of the ECJ. They say the theory that parties choose their arbitral seat on the basis of whether the court of that jurisdiction is able to issue an anti-suit injunction is unproven and that such orders are no longer as popular as they once were in any event. Further, the implications of the ECJ’s ruling applies only to arbitration within member states, and so the antisuit injunction will remain available against all of those countries that are not members of the EU. It is thought unlikely that all of the attractions offered by London arbitration will be devalued by the loss of the anti-suit injunction within European member states.

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