“West Tankers” Saga Continues: Court rejects Tribunal’s finding that it did not have jurisdiction to award damages for breach of an obligation to arbitrate

In the most recent of a long running series of decisions arising from a collision between the Appellant’s vessel, the “Front Comor”, and a Sicilian pier owned by the vessel’s charterers, the English court has found that the majority of the tribunal was wrong to decline jurisdiction over a claim for equitable damages for breach of an arbitration clause.  The judgment leaves scope for a tribunal to award damages for a breach of an arbitration clause or to make a declaration granting an indemnity with the effect of holding harmless an innocent party for the consequences of the breach.  Subject to any appeal, this case illustrates that a party facing parallel proceedings in breach of an arbitration agreement should consider amending its claim to include a claim for damages and/or a declaration for an indemnity as soon as the respondent brings parallel proceedings.  Of course, such a claim will be stronger if the relevant agreement contains an express indemnity in relation to any breach of the agreement to arbitrate. 

The procedural history of this case is lengthy.  In short, the Respondents brought proceedings in Italy in breach of an arbitration agreement.  In the context of an attempt by the Appellant to halt those proceedings by way of an anti-suit injunction sought from the English court, the ECJ (now known as the CJEU) found that an anti-suit injunction granted by the courts of a member state restraining proceedings before the courts of another member state is not compatible with EC Regulation 44/2001 (the Regulation).  An arbitration continued in parallel with the Italian proceedings and the tribunal made a partial final award declaring that the Appellant was not liable to the Respondents.  In the last “West Tankers” decision before the English court, the Appellant obtained leave to enter judgment in the terms of the partial final award with a view to relying on that judgment should the Italian court rule in favour of the Respondents and the Respondents attempt to enforce the Italian judgment under the Regulation (please see here for further detail). With the Italian court yet to rule on jurisdiction, the Appellant sought an award of damages from the tribunal in respect of the costs of the Italian legal proceedings and an indemnity against any Italian judgment on the merits which exceeded the partial final award.  The majority of the tribunal having declined jurisdiction, the Appellant appealed to the English court under section 69 of the Arbitration Act 1996 on the ground that the tribunal had erred in law.  

In finding that the tribunal had erred in law, the court concluded that the tribunal’s jurisdiction to award relief for breach of the arbitration agreement was not circumscribed by the ECJ’s judgment. Permission to appeal was granted and Flaux J commented that this case is likely to go further.  

The tribunal’s award finding that its jurisdiction to award damages was circumscribed by EU law

The majority of the tribunal found that, further to the ECJ’s judgment, it did not have jurisdiction to entertain a claim for damages against the Respondents for breach of the arbitration agreement.  Although recognising that the Regulation did not apply to arbitration, the majority found that it had to give full effect to the decision and “underlying philosophy” of the ECJ’s judgment.  It concluded that the ECJ’s judgment was founded on the protection of the pre-eminence of the right under Community law to bring proceedings in a national court, which meant that the Respondents had a right, under European law, to bring proceedings in Italy. The tribunal accordingly considered that it was driven to the conclusion that Community law would not allow a tribunal to “punish” a party for pursuing a course that the ECJ had approved.

The decision of the English court

In finding that the majority of the tribunal had erred in law, Flaux J found that there was nothing in the ECJ’s judgment (or the more detailed Opinion of the Advocate General on which the judgment was based) which supported the conclusion that the tribunal was deprived of jurisdiction to award relief for breach of the obligation to arbitrate. 

In essence, the court found that a tribunal cannot be treated in the same way as the court of a Member State for the purposes of the Regulation. Whilst the court in another Member State cannot review the decision of the court first seised, an arbitral tribunal is not subject to the Regulation regime because of the “arbitration exception” in the Regulation (Article 1(2)(d) of the Regulation). Similarly, the principle of mutual trust in respective national legal systems between the courts of Member States (which principle underpins the Regulation regime) could not be applied to a tribunal.  The court also held that an award of such relief would be consistent with the recognition by both the Advocate General and the ECJ that a tribunal and a court may reach inconsistent decisions on the merits and/or the scope and effect of the agreement to arbitrate.  In Flaux J’s view, there was no difference between: (i) a decision of a tribunal on the merits which was inconsistent with the decision on the merits reached by the Italian court; and (ii) a declaration by a tribunal that the Respondents should indemnify the Appellant in respect of any liability the Italian court might conclude the Appellant was under (which declaration would reflect the tribunal’s decision on the merits).

Importantly, Flaux J accepted that, whilst the tribunal was bound to apply European law as part of English law, the principle of effective judicial protection is not a free-standing principle but exists to protect rights under EU law (in this case, the right under Article 5(3) of the Regulation to have the Italian court to determine the issue of jurisdiction as court first seised). However, the Regulation does not apply to arbitration and the obligation to give effect to the principle of effectiveness in the context of the rights in the Regulation lies on “national authorities”, not private tribunals. The principle of effective judicial protection was not therefore engaged in the arbitration. Accordingly, the tribunal did not have to give effect to the right under the Regulation for the insurers to bring proceedings in the Italian courts, such that there was no reason why the tribunal did not have jurisdiction to grant damages or an indemnity.

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Filed under Challenges to awards, Damages, EU Law, Europe

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