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THE "FRONT COMOR"
LONDON MARITIME ARBITRATION HOLED BY THE ECJ?
The European Court of Justice ("the ECJ") has ruled1 that the English courts cannot grant an anti-suit injunction restraining a suit in breach of an arbitration agreement where the courts of another EU member state have jurisdiction over the substantive subject-matter of the dispute under Council Regulation 44/2001 ("the Judgments Regulation").
This decision may have a highly detrimental effect on the efficacy of English arbitration clauses in circumstances where the Judgments Regulation would otherwise enable the courts of a member state to assume jurisdiction over the substantive dispute. As the case itself demonstrates, this development is of great concern to the shipping industry, where London arbitration clauses are widely used in charterparties, bills of lading and contracts of affreightment generally.
Context: the practice of the English Courts before now
The Judgments Regulation2 applies broadly to all civil and commercial matters 3 and requires persons domiciled in a member state to be sued in that state. Moreover, even where the defendant is not domiciled in a member state there are special jurisdictional rules 4 which will allow the courts of member states to accept jurisdiction where, for example, they are the location of (in contractual disputes) the place of performance of the obligation in question or (in tortious matters) the place where the harmful event occurred.
However, the Judgments Regulation expressly provides that it "shall not apply to... arbitration" 5. For this reason, as Lord Hoffman made clear in the House of Lords' reference of the matter to the ECJ 6, the English courts have considered that they may still injunct a suit brought in breach of an English arbitration agreement in a member state with as much facility as if it were brought in a country not bound by the Judgments Regulation. This contrasted with the approach to suits brought in a member state in breach of an exclusive jurisdiction agreement in favour of another member state. In those cases, after the ECJ's decision in Turner v Grovit7, notwithstanding the parties' express agreement, the latter would have to decline jurisdiction in favour of the court that had been "first seised" of the dispute and refuse an anti-suit injunction to enforce the jurisdiction agreement.
The "FRONT COMOR"
The "FRONT COMOR" was let by Owners to Charterers under a charter on the Asbatankvoy form expressed to be governed by English law and containing a London arbitration clause. The Vessel collided with a jetty owned by Charterers at their refinery in Syracuse, Italy. Charterers claimed against their insurers (the defendants to this action), who indemnified Charterers up to the limit of their insurances. Charterers then commenced London arbitration proceedings against Owners, in the ordinary way, limiting their claim to their uninsured losses. However the insurers, being statutorily subrogated to Charterers' rights under article 1916 of the Italian Civil Code, brought a claim in the nature of delict (tort) against Owners for the amounts they had paid Charterers - and their proceedings were issued in Syracuse (being the place where the harmful event occurred) pursuant to article 5(3) of the Judgments Regulation. Owners sought an anti-suit injunction in London restraining the insurers from prosecuting their action in Italy.
The Commercial Court, following the Court of Appeal decision in Transport Mutual Insurance Association (Eurasia) Ltd v New India Assurance Association Co Ltd8, granted the injunction (as reported in the
summary of the March 2005 decision which appears on our website). The insurers' appeal went direct to the House of Lords. Whilst the House of Lords considered the matter ought to be referred to the ECJ under the Judgments Regulation, their observations essentially affirmed the correctness of the judge's approach. The essential point was the express exclusion of arbitration from the scope of the Judgments convention, which exclusion the ECJ had itself earlier seemed to confirm extended to court proceedings where the subject matter was arbitration (such as proceedings to appoint an arbitrator) in the "ATLANTIC EMPEROR"9.
In Europe, however, the Advocate General10 first opined11 and the ECJ itself then held that the established English practice was wrong. Although the ECJ confirmed that the proceedings to obtain an anti-suit injunction (to stop proceedings in breach of the arbitration agreement) were indeed themselves outside the Judgments Regulation12 , what had to be looked at was not the subject matter of the anti-suit proceedings but the subject matter of the suit to be injuncted. If those proceedings were within the scope of the Judgments Regulation then "a preliminary issue concerning the applicability of an arbitration agreement, including its particular validity, also comes within its scope of application"13 . Hence it was for the courts of that state (here Italy) to rule on whether or not it had jurisdiction14 , not the courts where the anti-suit injunction was being sought. The English court's injunction in this case was therefore not compatible with the Judgments Regulation15 .
The ECJ therefore appears to have made paramount the (political) imperative of "the attainment of the objectives of unification of the rules of conflict of jurisdiction in civil and commercial matters and the free movement of decisions in those matters" (in particular that a member state should rule on its own jurisdiction). This in principle seems to leave the efficacy of the extant English arbitration in the hands of the Italian court and subject to great uncertainty. Presumably the Italian court may decline jurisdiction on Owners' application; or it may decide it will determine the substantive claims brought before it by the insurers and conceivably make an order designed to halt the progress of the arbitration. What if it makes no order with respect to the arbitration or one that the tribunal does not recognise? This would then give rise to the prospect of conflicting findings.
The ECJ appears to have considered of little or no importance the legal, practical or commercial considerations of: (1) the parties being held to their agreement to arbitrate; (2) compliance by signatory states with their obligations under Article II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; (3) the convenience and competiveness of London as a popular arbitration venue; (4) the certainty of the status and conduct of English arbitrations where proceedings in a member state have been commenced; and (5) the risk of an arbitration tribunal and the court of a member state coming to inconsistent decisions. What is more, the ECJ's own previous ruling in the "ATLANTIC EMPEROR" appears to be a dead letter and the position of arbitration agreements under the Judgments Regulation practically assimilated to that as regards jurisdiction agreements (ie the Turner v Grovit regime) despite the express exception of arbitration in that regulation.
Consequences
In the context of charterparties, bills of lading and contracts of affreightment containing London arbitration clauses, it would seem that the door may have been opened to the following types of action being brought in the courts of member states in breach of the arbitration clause: (1) where the proposed defendant to the suit is domiciled within a member state; (2) where the contractual obligation in question can be said to be performable in a member state (such as short delivery, delivery of damaged goods and payment obligations); and (3) if the complaint is tortious (as in the "FRONT COMOR" itself), where the harmful event occurred in a member state. (This would seem to include claims in both bailment and conversion.)
Conclusion
The ECJ has trampled over the needs and established practices of the shipping industry. It will now be necessary to examine carefully not only whether the forms of arbitration clause currently in use can be adapted so as to seek to protect, as best as possible, the parties' expectations at the time the contract is made; but also - where proceedings have been commenced in breach of an arbitration agreement - what effective redress against the party breaching the arbitration agreement may be obtained within the arbitration itself and the English supervisory regime.
If you have any queries arising out of the above, please do not hesitate to contact Christopher Dunn, Mark Lloyd or Kish Sharma at this office.
February 2009
ENDNOTES
1 On 10th February 2009 in case C-185/07.
2 In substance the Judgements Regulation essentially applies the substance of the Brussels Convention of 1968 and the Lugano Convention of 1988 to all the current Member States of the EC, in which it has direct effect. Strictly speaking, in Denmark the Brussels Convention still applies, but that does not effect the substance of this bulletin.
3 Article 1.
4 Article 5.
5 Article 1(2)(d).
6 [2007] 1 Lloyd's Rep 391.
7 [2004] 2 Lloyd's Rep 169.
8 [2005] 1 Lloyd's Rep 67.
9 [1992] 1 Lloyd's Rep 342.
10 Whose role it is to give a detailed advisory consideration of the matter to the ECJ in advance of their determination.
11 On 4th September 2008.
12 Para 23.
13 Para 26.
14 Para 27.
15 Para 32. The case will now return to the House of Lords for them to dispose of the appeal from Colman J accordingly.
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