ecj west tankers case

ECJ: West Tankers Case

Chenguang Dai | Vaibhav Sathe

Case Background: Events

•Italinlan oil company

•Charterer of vessel

which collided

•Italy

•Erg's insurers

•Australia

•Owner of vessel

which collided

•Charterparty

•Governed by English law

•Clause:provide for arbitration in London

•August 2000

•a vessel owned by West Tankers and

chartered by Erg

•Collision in the Italian port of

Syracuse


•Erg claimed against its

insurers

•Get paid €15.5million

•London

•Arbitration proceedings

•West tankers denied liabilities

Syracuse proceedings •submitted its claim to a court

in Syracuse, Italy

•making the Italian

court the “first-seized”

court under the Brussels

Regulation

Anti-suit injunction

proceedings •Commoercial court in London

•sought an injunction

•The Commercial Court issued a

permanent injunction

•Upon insurer's appeal, the court

certified the case to the House of

Lords

Case Background: Legal Framework

Anti-suit Injunction

Conflict of laws (or private international law) is a set of

procedural rules that determines which legal system and which

jurisdiction's applies to a given dispute.

In the area of conflict of laws, anti-suit injunction is an order

issued by a court or arbitral tribunal that prevents an opposing

party from commencing or continuing a proceeding in another

jurisdiction or forum.

If the opposing party contravenes such an order issued by a

court, a contempt of court order may be issued by the

domestic court against that party.


Brussels Convention: Regulation 44/2001 (Brussels I)

Judgment given by any court in EU to be recognized in entire

EU territory unless recognition is contested

Jurisdiction is to be exercised by the EU country in which the

defendant is domiciled, regardless of his/her nationality

In respect of liability insurance or insurance of immovable

property, the insurer may, in addition, be sued in the courts for

the place where the harmful event occurred.

The regulation does not apply to: - arbitration

Parties to a contract are free to designate a court to rule on

any dispute even though that court might not have jurisdiction


United Nations: New York Convention

Recognition of contractual arbitration to resolve international

commercial disputes

Countries are required to give full effect to arbitration

agreements by denying the parties access to litigations in

domestic courts. Instead, such matter should be referred to

arbitration tribunal as agreed upon in agreement.

United Kingdom: Supreme Court Act 1981

High Court can grant injunction in all cases in which it appears

to the court to be just and convenient to do so.

The Arbitration Act 1996, Sec. 44 has allowed courts to

regularly exercise this power to grant injunctions for the

purpose of arbitration proceedings.

Did this result into London being favorite seat

of International Arbitration?

Can one EU member state court grant

injunction to litigation proceedings in other

EU member state court?

Why EU should handicap itself by denying

this powerful weapon to seat of arbitration,

while New York, Singapore and Bermuda

provide same?


House of Lords

ECJ

• Is it consistent with the

Jurisdiction Regulation for a

court of a Member State to

make an order 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?"

House of Lords’ Viewpoint

As in Gasser v MISAT, Member State court having exclusive jurisdiction can’t issue injunction to restrain litigation before another Member State court if that court was first seized of the dispute.

Under Brussels I, Italian court has right to try the dispute.

But, arbitration is excluded from scope of Brussels I.

Question is to protect contractual freedom to have dispute determined by arbitration. Arbitration can not be self sustaining. It needs backing of powerful courts of law.

Injunction provides competitive advantage to London

For arbitration cases, Member states should trust arbitrators. For all other cases falling in ambit of Brussels I, the courts in EU should trust decisions of other EU courts.

EU competes with rest of world, so why deny EU destination an opportunity to compete against Singapore and New York?

ECJ Advocate General’s viewpoint

Aims of a purely economic nature cannot justify infringements of Community law (Brussels Convention)

Litigation outside arbitration seat will result only if the parties disagree on applicability of arbitration clause to the dispute. It may mean there is no contractual consensus on arbitration.

If national court determines that the arbitration clause is valid and applicable to the dispute, the New York Convention requires a reference to arbitration. There is therefore no risk of circumvention of arbitration.

If other Member States were to follow the English example and also introduce anti-suit injunctions, reciprocal injunctions would ensue. Ultimately the jurisdiction which could impose higher penalties for failure to comply with the injunction would prevail.

Case Background: ECJ Verdict

House of Lords

ECJ

• I s it consistent with the

Jurisdiction Regulation for a

court of a Member State to

make an order 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?"

• In its Judgment of February 10,

2009 the ECJ ruled that an

anti-suit injunction in support of

arbitration restraining person

from commencing or continuing

proceedings before the courts of

another Member State was

incompatible with the

Jurisdiction Regulation.

ECJ Judgment (1/2)

Court agreed to House of Lords that when viewed from perspective of English Courts, anti suit relates to arbitration and hence excluded from Brussels I regulation.

But court found that Syracuse court has exclusive jurisdiction under regulation to rule on objection to its own jurisdiction.

Anti suit injunction runs counter to principles of mutual trust as accorded by EU Member States to others’ legislative system

So, when viewed from perspective of Syracuse Court, the anti-suit injunction compromises its power to determine its own jurisdiction. So, anti suit injunction can not be said to be related only to arbitration.

ECJ Judgment (2/2)

So, while main proceedings do not violate Brussels I, they may have consequences which undermine effectiveness and objectives of Brussels I.

Due to nature of rights to be protected, the question of applicability of arbitration (as raised in Syracuse court) comes under ambit of regulation.

Court agreed with Advocate General and ruled that no court in one member state is in better position to determine if court in other state has jurisdiction.

Allowing such injunctions is denying party chance to challenge applicability of arbitration clause in particular dispute

Therefore, anti suit injunction in case where regulation is applicable is violation of trust under EU treaties.

The court which is seized of the dispute should refer the case to arbitration unless it finds that arbitration agreement is not applicable.

Expert Comments on ECJ judgment

ECJ decision not surprising as it readily accords with underlying principles of Brussels I regulation

Blanket exception in regulation regards to Arbitration has resulted in complexity. Arbitration always requires judicial support from national courts in procedures, appointment of arbitrators, protection and guarantee of fundamental rights and values, and enforcement of awards. International dispute arbitrations often refer to more than one EU jurisdictions. The interface between regulation and arbitration is missing.

House of Lords concerns are unjustified. ECJ does not affect power of English courts to issue injunctions outside EU region.

Implications

ECJ affects power of English courts to issue injunctions against parties commencing litigations in member states of EU. Their power of issuing injunctions against rest of world remains unaffected.

From economic point of view, European parties would be encouraged to choose London as seat of arbitration in contracts with non-European parties.

European parties negotiating arbitration are unlikely to prefer New York, Singapore or Bermuda for economic reasons (Cost, Distance Inconvenience) just for single advantage of ability to issue counter injunctions.

In parallel proceedings, parties always have protection of New York Convention in 142 UN Member States

Unlikely to affect competitive advantage of London.

Thank You!

ecj west tankers case

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