Two weeks ago the European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs published a broad study on the legal instruments and practice of arbitration across the European Union and Switzerland. This study was undertaken over the past year at the Brunel Centre for the Study of Arbitration and Cross-Border Investment and is based on academic research and the results of a large-scale survey of arbitration practitioners across the EU and Switzerland.
The primary goal of this study is “to portray accurately the actual diversity of arbitration law and practice across the European Union and Switzerland” in order to “discuss the strengths and weaknesses of the law and practice observed” in each European jurisdiction. In doing so, it first examines the legal framework and practice of arbitration in each Member State. It then analyses specialised topics of arbitration such as commercial, consumer and online arbitration and finally it evaluates the involvement of EU Member States and the EU in investor-state arbitration.
The study also provides insights into and recommendations for potential future actions and reforms mainly to improve the interaction between arbitration and EU law. Whilst the purpose of this contribution is to guide the European Parliament in its future decisions regarding arbitration, it remains uncertain whether potential reforms on this topic are part of Europe’s broader agenda. Continue reading
The English Commercial Court has granted an application under section 32 of the English Arbitration Act 1996 (the Act), determining that a tribunal appointed by the Refined Sugar Association has substantive jurisdiction to hear a dispute that has arisen out of a sugar sale between Toyota Tsusho Sugar Trading Limited (Toyota) and Prolat S.R.L. (Prolat). Section 32 provides that, if certain conditions are satisfied, a court may determine any question as to the substantive jurisdiction of the tribunal.
The application arose because Prolat had brought proceedings against Toyota in the Italian courts contending, among other things, that there was no arbitration agreement. Toyota had started arbitration proceedings in London against Prolat on the basis that the parties had concluded an agreement to arbitrate.
The Court first considered its jurisdiction to consider the question of the existence of the arbitration agreement given that Prolat had commenced proceedings in Italy, and the relevance of the Brussels Regulation (and the Recast Brussels Regulation to take effect on 10 January 2015 – see our blog post). It concluded that the existence of the Italian proceedings did not encroach on its jurisdiction to make a determination on the issue of the tribunal’s jurisdiction as arbitration fell outside the Brussels Regulation and it was not being asked to interfere with the Italian proceedings which fell within the Brussels Regulation.
The Court focused on an analysis of the contract and the arbitration clause and found that (a) on the facts, the contract and the arbitration clause were valid and governed by English law; and (b) the dispute between the parties fell within the scope of the arbitration clause.
This case highlights the possibility, provided by section 32 of the Act, of creating a “shield” judgment to try to prevent enforcement in England of a judgment made in Member State court proceedings brought in breach of an arbitration agreement.
In The London Steam-Ship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain and the French State  EWHC 3188 (Comm), the High Court had to consider whether to exercise its discretion under section 66 of the English Arbitration Act 1996 (the Act) to permit enforcement of two arbitral awards giving declaratory relief to the protection and indemnity insurers (the Club) of the owners of a vessel that had sunk off the coast of Spain, causing a major oil spill. The arbitral awards made declarations limiting the liability of the Club in relation to claims brought by the Spanish and French States (the States) as a result of the oil spill. The application was made by the Club on an urgent basis, as it understood that a Spanish court would soon issue a judgment in respect of the same cause of action.
The States challenged the substantive jurisdiction of the tribunal that had rendered the two awards (the Tribunal) on the grounds that their rights of direct action against the Club were in essence independent rights under Spanish law, the claims were not arbitrable and (in relation to France’s claims only) waiver of the right to arbitrate by the Club. However, the Court dismissed all of the challenges, emphasising that the States’ claims were in substance claims under a contract of insurance between the Club and the owners of the vessel (the Contract) and that they fell within the scope of the arbitration clause in the Contract.
The States’ further contention that the English courts lacked jurisdiction over them in view of their state immunity under the English State Immunity Act 1978 (the SIA) was rejected by the Court. In bringing claims in relation to the Contract, the States had, for the purposes of the Act and the SIA, become parties to the Contract and the agreement in writing in the Contract to refer claims to arbitration. The States therefore came within one of the exceptions to state immunity in the SIA.
The Court held that the real prospect of establishing the primacy of the awards of the Tribunal over any inconsistent judgment which might be rendered in Spain meant that there was clear utility in granting the Club leave to enforce the awards as judgments under section 66 of the Act. It rejected the States’ arguments that exercise of its discretion to permit enforcement would be inappropriate as it would lead to a result not countenanced by EC Regulation No 44/2001 (the Brussels Regulation) or that the awards should not be enforced because of the importance of, and public interest in, the Spanish proceedings. The Court granted leave to enforce the awards as judgments of the Court to the same effect.
The Supreme Court has confirmed that the English court has jurisdiction to injunct the continuation or commencement of foreign proceedings brought in breach of an arbitration agreement, even in the absence of an actual, proposed or intended arbitration (Ust-Kamenogorsk Hydropower Plant JSC (Appellant) v AES Ust-Kamenogorsk Hydropower Plant LLP (Respondent)  UKSC 35). Following the now famous West Tankers¹ decision, it should be noted that this power only applies against jurisdictions which fall outside the Brussels Regulation and Lugano Convention (ostensibly, non-EU countries). Continue reading
On 10 December, the Council of EU Justice Ministers voted to adopt the revision of Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, otherwise known as the Brussels Regulation. Because the Council voted to accept the draft without any amendment, there is no need for a second reading. The text will be adopted, signed and published.
As reported in our previous blog posts (available here and here), the text of the revised Brussels Regulation effectively reverses the gradual encroachment of the Brussels regime into arbitration. It clarifies that there is an absolute exclusion of arbitration from the ambit of the Regulation. The key effect of this clarification is that:
- Each member state court has the right to refer parties to arbitration, stay or dismiss proceedings and examine whether an arbitration agreement is null, void or inoperative or incapable of being performed
- A member state court need not wait for the decision of another member state on the validity of an arbitration agreement, even if the question has been referred to that other court first
- In the event of a conflicting arbitral award and a member state court judgment, a member state may enforce the arbitral award (if considered valid) under the New York Convention in preference to the court judgment
- The scope of “arbitration” has been clarified to include court proceedings surrounding or in support of arbitration (such as establishment of tribunals, powers of arbitrators etc.)
- Whether arbitration is a principal or incidental issue will not matter, and it will still fall outside the Regulation.
The revised Regulation will take effect two years after it comes into force. Although, as described below, not all issues are ironed out, the amendments to the Brussels Regulation are certainly a positive step for arbitration and should give some comfort to parties that they no longer need to take steps to protect their arbitration agreements and awards by circumventing or mitigating the effects of the ECJ’s decision in West Tankers (Allianz SpA v West Tankers (Case C-185/07)).
On 20 November 2012 the European Parliament voted in favour of the Legal Affairs’ Committee amendments to the European Commission’s proposal to reform the Brussels Regulation. The proposals for arbitration are set out in our earlier blog post here.
The draft legislation will now be sent to the Council of the EU for final adoption. This is expected to take place during December at the next Council of Justice Ministers.
On 11 October, the European Parliament’s Legal Affairs Committee approved its report on reform of the Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (the Brussels Regulation). The report takes into account the general approach adopted by the European Council in June and it is therefore highly likely that the report is now very close to what the amendments to the Brussels Regulation will look like when they take effect. The Parliament is expected to vote on the report on 19 November and the Council will formally vote on the amendments thereafter.
If the committee’s proposals are adopted, the controversial ‘anti-arbitration’ decisions in Endesa and West Tankers would be effectively reversed, and there would be an absolute exclusion of arbitration from the ambit of the Regulation. The key effect of this reversal is that parties will no longer be able to derail an arbitral process indefinitely by bringing proceedings in the court of another Member State in breach of an arbitration agreement. Also, primacy in relation to matters relating to the support of an arbitration will revert to the courts at the seat of the arbitration or the courts at the place of enforcement. For further information on these decisions please see our earlier blog posts here.
The proposals adopt the clear exclusion wording suggested by the Council and emphatically reject the Commission’s proposal for a partial inclusion of arbitration within the scope of the Brussels Regulation. This position has been lobbied for by the English MoJ and the wider international arbitration community.
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.
On 24 January 2012, the Court of Appeal handed down its keenly awaited decision in West Tankers Inc v Allianz SPA & Generali Assicurazione Generali SPA  EWCA Civ 27. It has upheld Field J’s decision at first instance in which the court enforced a declaratory arbitral award under section 66 of the English Arbitration Act 1996. Enforcement under s.66 allows a judgment to be entered in the terms of the award. It remains unclear, however, whether the resulting judgment could be used to prevent the recognition of any inconsistent foreign judgment in England (Article.34 of the Brussels Regulation, EC Regulation 44/2001).
The decision provides a possible alternative to the anti-suit injunction that the European Court of Justice ruled out in its landmark 2008 ruling in this long running case. The ECJ declared that anti-suit injunctions should not be available to prevent proceedings in other European member state courts being brought in breach of an arbitration agreement. The Court of Appeal now goes some way to ensuring that arbitration agreements will be upheld.
In African Fertilizers and Chemicals Nig v BD Shipsnavo, the Commercial Court held that a declaratory award on the jurisdiction of an arbitral tribunal is enforceable (under section 66 of the Arbitration Act 1996), allowing judgment to be entered in the same terms as the arbitral award. This decision is of particular relevance because proceedings are afoot in Romania which may produce an inconsistent judgment. Therefore, establishing the primacy of the arbitral award by entering judgment in its terms, allows African Fertilizers to obtain the material benefit of the award. It follows closely on the heels of the latest decision in the long running West Tankers saga (due to be appealed shortly) and comes to a similar conclusion.