Anti-Suit Injunctions after West Tankers – The Rise Of Foreign Tactical Litigation

14/06/2010
Extract of a Seminar on International Commerical Arbitration Delivered by Hefin Rees on 13th May 2010.
  1. There may be occasions when the involvement of a national court is necessary in order to ensure the proper conduct of an arbitration. One such example is the use of an anti-suit injunction.
  2. In the context of international arbitration, an anti-suit injunction is a national court order used to protect the jurisdiction of the arbitration tribunal. Through such an injunction, a party can be ordered not to pursue court proceedings initiated in breach of an arbitration agreement. This is, in part, to hold the parties to their contractual agreement and also out of concern that those court proceedings (unless restrained) could frustrate the ongoing arbitration[1].
  3. The concern has always been that such tactical litigation results in delay and expense. As these so-called “torpedo” actions are often brought in countries where the judicial process is slow or complex, or is likely to favour a local litigant, the risk of frustrating the arbitration process is real. Traditionally, the anti-suit injunction has been viewed in England as the primary means to deal with such tactical litigation.
  4. In February 2009 the European Court of Justice (“ECJ”) delivered its controversial decision on anti-suit injunctions in the case of West Tankers Inc v Allianz SpA (Case C-185/07). This case dealt with anti-suit injunctions as they apply within Europe and, in particular, how to apply EC Regulation 44/2001 (“the Judgments Regulation”) to cases involving arbitrations.
  5. After West Tankers, the English courts can no longer use their traditional weapon of choice, the anti-suit injunction, in response to proceedings started elsewhere in EU or Lugano[2] states in breach of an agreement to arbitrate.
  6. The effect of West Tankers is that in a case where a party has first issued court proceedings in another EU state court, in that case Italy, the Italian court should not be deprived of its right to determine its own jurisdiction pursuant to the Judgments Regulation and should not be restrained by the English court pursuant to an anti-suit injunction.
  7. The facts of the case are these. West Tankers Inc had chartered a vessel called The Front Comor to Erg SPA (Erg) pursuant to a charterparty which provided for disputes to be resolved by arbitration in England. The vessel had a collision with a jetty in the Italian port of Syracuse, Sicily, causing substantial damage and Erg claimed compensation from its insurers, Allianz, for compensation up to the limit of its cover. Erg also commenced arbitration proceedings in London against West Tankers to recover the balance of its losses.
  8. In the meantime, Allianz, who were the insurers, commenced subrogated proceedings against West Tankers in the Italian courts in order to recover the sums they had paid to Erg under the insurance policy.
  9. West Tankers challenged the Italian proceedings in the English courts on the basis that the Italian courts lacked jurisdiction as the insurer’s claim was covered by the arbitration agreement. West Tankers requested, amongst other relief, an anti-suit injunction requiring Allianz to discontinue the Italian proceedings.
  10. The English High Court upheld West Tankers’ claims and granted the anti-suit injunction. The insurers argued that the grant of such an injunction was contrary to the Judgments Regulation, since they had a right to bring a claim in the Italian courts and, if the Italian courts took jurisdiction, then that should be the end of the matter. On appeal, the House of Lords made a referral to the ECJ on the question whether anti-suit injunctions issued to give effect to arbitration agreements are compatible with the Judgements Regulation.
  11. The ECJ decided that anti-suit injunctions in support of agreements to arbitrate are incompatible with the Judgments Regulation. Whilst acknowledging that because of the arbitration exception under art. 1(2)(d) of the Judgements Regulation an anti-suit injunction made to restrain the breach of an arbitration agreement fell outside the scope of the Judgments Regulation, the ECJ focused on the secondary effects of such relief on other proceedings which fell ostensibly within the Judgments Regulation. In particular, the ECJ characterised the insurers’ claim before the Italian courts as a tort claim, which did fall within the scope of the Judgments Regulation, and also regarded the question as to whether these claims were covered by an arbitration agreement to be a preliminary matter for determination by the Italian court. As an anti-suit injunction could interfere with the Italian court’s ability to exercise that jurisdiction, the ECJ decided that such relief must be incompatible with the Judgments Regulation. In these circumstances, it was exclusively a matter for the courts first seised of the dispute – in this case the Italian courts – to determine the validity of an arbitration agreement relied upon by a respondent in order to contest its jurisdiction. Otherwise, it would amount to stripping that court of the power to determine its own jurisdiction under the Judgements Regulation.
  12. The ECJ decision is based on the doctrine of practical effectiveness (effet utile) in EC law, which provides that the application of national procedural rules must not prejudice the effectiveness of the Judgements Regulation in allocating jurisdictions. The principle is based on comity and “mutual trust”, namely that the courts of each EU state are equally qualified to determine whether the courts of another such state have jurisdiction. The ECJ thought that an anti-suit injunction made by a fellow EU Member State was an impermissible interference with the principle underpinning the Judgments Regulation.
  13. It is worth emphasising that West Tankers does not affect any anti-suit injunction in England that is sought against proceedings in a country outside of the Judgments Regulation or Lugano Convention states. The long range capabilities of the anti-suit injunction are, therefore, unchanged and relief will continue to be available against proceedings brought in breach of an arbitration agreement in other states including, amongst others, by way of example the United States, China, India and Russia. This important fact was confirmed by the recent decision of Cook J in Shashou v Sharma[3] in relation to an anti-suit injunction to restrain court proceedings in India.
  14. The practical effect of West Tankers is that where a party to an arbitration agreement has brought court proceedings in another EU Member State, it will not be possible to prevent him from continuing with those court proceedings through injunction. Those court proceedings will need to be determined; but that does not mean necessarily that the arbitration proceedings have to wait for the outcome of the court proceedings (although that will ultimately be dependent on the merits of the court proceedings and the approach of the arbitrators). In such circumstances, it may be possible to obtain an aware well in advance of a determination by the foreign court. This would then mean, in principle at least, that any award would be enforceable under the NYC (although there may be problems with enforcement in the country running parallel proceedings!).
  15. The ECJ decision of West Tankers has been widely criticised by commentators. One of those criticisms has been that the decision does not respect one of the fundamental principles of arbitration law, which is that parties select specific jurisdictions as seats for their arbitration because of their arbitration-friendly judicial systems which can include such procedural rules as the power to grant an anti-suit injunction. The ECJ overlooked the prima facie case for giving priority to the forum expressly chosen by the parties in the arbitration agreement. And, by signing up to an arbitration agreement, the parties have elected to exclude the powers of the national courts of any jurisdiction to deal with any disputes between them covered by their agreement. This is surely the very point of the arbitration exception to the Judgements Regulations, as set out in art. 1(2)(d). And so, restraining foreign proceedings in such circumstances should not amount to a challenge to the Regulation because there is no jurisdiction to be allocated in the first place.
  16. The West Tankers decision also ignores the well-established principle of competence-competence, which provides that it is for the arbitral tribunal to decide on the applicability and validity of the agreement to arbitrate. In the West Tankers case, the only issue that the Italian court needed to consider was whether an arbitration agreement existed in the case.
  17. In assessing the practical impact of the West Tankers case in terms of an adverse impact on parties choosing London as a seat of arbitration in the future, two factors need to be borne in mind. Firstly, given that arbitration between parties from different EU States and Lugano Convention States are considered to comprise a comparatively small proportion of London-based arbitrations, the overall impact of the decision on London as a choice for parties to select as a centre for international dispute settlement should, in real terms, be quite limited. Secondly, other key venues for international arbitration within Europe, such as Paris, Geneva and Stockholm are popular notwithstanding the fact that anti-suit relief has never been available under those jurisdictions’ procedural rules. In light of these two practical factors, there is a risk that some commentators have overstated the likely practical effect of West Tankers on international commercial arbitration in London.
  18. The ECJ decision in West Tankers was considered by the Court of Appeal in November 2009 in National Navigation Co v Endesa Generacion SA (The Wadi Sudr)[4]. This case is worth examining as it provides the first detailed consideration of the impact of West Tankers on alternative relief available to the English courts now that the possibility of anti-suit injunctive relief has been excluded.
  19. In the Wadi Sudr there was a London arbitration clause which was governed by English law. The Spanish court took jurisdiction in proceedings brought by Endesa and held that the arbitration agreement did not apply, partly because it had not been validly incorporated under Spanish law. Prior to the Spanish court delivering its judgement, NNC issued an arbitration claim and applied for an anti-suit injunction and a declaration that disputes between the parties were referable to London arbitration and that the English court was not required to recognise the Spanish judgment. The anti-suit injunction application was dismissed following West Tankers; however Gloster J granted the application for a declaration in the arbitration claim. That decision was appealed.
  20. The Court of Appeal held:
  1. The effect of the decision in West Tankers was that a judgment on a preliminary issue – including one on whether an arbitration clause had been included in the relevant contract – was a Regulation Judgment if it formed part of proceedings the main scope of which fell within the scope of the Regulation;
  2. The judgment of the Spanish court in this particular case was binding on the arbitration proceedings and gave rise to an issue estoppel;
  3. In the light of West Tankers, a party was entitled to challenge the incorporation of an arbitration clause in another EU court, and the English court had no alternative but to recognise such judgement.

Click here for more information on the European Commission’s Green Paper on the relationship between the Judgments Regulation and Arbitration.

References

[1] Aggeliki Charis Compania Maritima v Pagnan (The Angelic Grace) [1995] 1 Lloyd’s Rep 87

[2] The Lugano states are Iceland, Norway and Switzerland

[3] [2009] EWHC 957 (Comm) at [23] and [35]-[39]

[4] [2009] EWHC 137 (Comm)