West Tankers: The saga continues – has West Tankers found a way around the ECJ's judgment, enabling it to frustrate the Italian proceedings that it earlier failed to injunct?

On 6 April 2011, in the latest instalment of the West Tankers dispute, the Commercial Court in London upheld an earlier order for enforcement of a declaratory award which found that West Tankers Inc ("West Tankers") had no liability to Allianz SpA and Generali Assiurazione Generali SpA (the "Insurers"), who are currently pursuing court proceedings against West Tankers in Italy.  The order was upheld on the basis that an order to enforce the declaratory award under section 66 of the English Arbitration Act 1996 (the "Arbitration Act") may permit West Tankers to establish the primacy of the declaratory award over any subsequent inconsistent judgement of the Italian courts.  Although the court's desire to uphold the validity of the arbitration award is welcome, the result is perhaps surprising, considering that the ECJ has already indicated that the English Court is not permitted to grant an anti-suit injunction to restrain the same Italian proceedings.

In this article, we recap briefly the history of the West Tankers proceedings before discussing this latest instalment, and how it leaves the law in this area uncertain and in need of reform.

History

In August 2000, a vessel owned by West Tankers, under charter to Erg Petroli SpA ("Erg"), collided with Erg's jetty in Syracuse, Italy.  The charterparty was governed by English law and contained an agreement to arbitrate any disputes in London.

Erg claimed compensation from its Insurers and also commenced arbitration proceeding in London against West Tankers for the excess in damages above that covered by the insurance.  Some time later, the Insurers brought proceedings against West Tankers before an Italian court to recover the sums they had paid to Erg.

West Tankers challenged the jurisdiction of the Italian court and sought an anti-suit injunction from the English court to restrain the Insurers from pursing the Italian court proceedings. On an appeal direct to the House of Lords, their Lordships referred to the ECJ the question whether it was consistent with EC Regulation 44/2001 (the "Brussels Regulation") for a court of a Member State to make an order to restrain a party from commencing or continuing proceedings in another Member State on the ground that such proceedings are in breach of an arbitration agreement. On 10 February 2009, the ECJ decided that although arbitration is expressly excluded from the Brussels Regulation, an anti-suit injunction, even if it is in aid of a prima facie arbitration agreement, is not compatible with the Brussels Regulation, because it "necessarily amounts to stripping that court [where a parallel litigation is or is going to be commenced] of the power to rule on its own jurisdiction under the Brussels Convention" and "runs counter to the trust which the Member States accord to one another's legal systems and judicial institutions".  For further information, please see Herbert Smith's e-bulletin on the ECJ's ruling, available here.

Application of ECJ West Tankers ruling in National Navigation v Endesa

In National Navigation v Endesa, described in an earlier Herbert Smith e-bulletin available here, the courts in Almeria, Spain, determined that Spanish law applied to the dispute and that an arbitration clause in the relevant charterpary had not been incorporated into the bill of lading that was in dispute and therefore did not apply.  The English High Court, which was the court at the seat of the arbitration, then made a contrary declaration that the arbitration agreement did apply.  The Court of Appeal reversed the High Court's ruling, on the basis that:

1. the effect of the ECJ's ruling in West Tankers was that a judgment on a preliminary issue (including in respect of incorporation of an arbitration clause, such as that by the courts in Almeria), will be a Brussels Regulation judgment if it forms part of proceedings the main scope of which fall within the Brussels Regulation.  The arbitration exemption in the Brussels Regulation therefore did not apply;
2. a Brussels Regulation judgment can give rise to an issue estoppel in arbitration proceedings, even though the proceedings themselves are outside the Brussels Regulation;
3. the English courts were bound to recognise the decisions of the courts in Almeria on incorporation, and there was no room for an argument that public policy was infringed (by a failure to respect the arbitration agreement) and no entitlement for the English courts to re-examine the question of incorporation for themselves.

The West Tankers proceedings continue

In West Tankers, as a result of the ECJ's ruling, no anti suit injunction was issued, and both the Italian court and London arbitration proceedings continued.  The English courts held that the Insurers were bound by the arbitration agreement and ordered that the dispute between Erg, West Tankers and the Insurers was to be determined as a single arbitration by the arbitral tribunal that had already been appointed. Erg continued to participate but the Insurers declined to take any part in the arbitration.  

On 7 October 2008 the arbitral Tribunal rendered an Award ruling that West Tankers was under no liability to Erg, and on 12 November 2008, the tribunal rendered what it termed its third final award (the "3rd Final Award") declaring that West Tankers was under no liability to the Insurers in respect of the collision. It is the 3rd Final Award that became the subject matter of the current case.

West Tankers sought to enforce the 3rd Final Award in England, concerned that the Insurers may obtain a judgment in their favour from the Italian court and then seek to have that judgment recognised and enforced in England pursuant to the Brussels Regulation.  West Tankers alleged that once the 3rd Final Award had been converted into a court judgement, any subsequent Italian judgement in favour of the Insurers would not be recognised in England, because (i) Article 34(3) of the Brussels Regulation provides that a judgment will not be recognised in a Member State if it is irreconcilable with a judgment given in a dispute between the same parties in that Member State and (ii) recognition of such a judgment would be manifestly contrary to public policy in England and Wales.

By an order dated 15 November 2010, Simon J granted leave to enforce the 3rd Final Award pursuant to section 66(1) of the Arbitration Act and entered a judgment against the Insurers in the terms of the award pursuant to section 66(2) of the Arbitration Act. 

The Insurers applied to set aside the Order, on the basis that a purely declaratory award of this nature cannot ordinarily be enforced as a judgment.

The judgment

Field J. concluded that the purpose of section 66(1) and (2) of the Arbitration Act was to provide a means by which the successful party in an arbitration could obtain the material benefit of the award other than by suing on it. Where the award is in the nature of a declaration and there was no appreciable risk of the losing party obtaining an inconsistent judgment in a Member State which it might try to enforce in England, leave will not generally be granted because the successful party will not thereby obtain any benefit which he does not already have by virtue of the award per se.

In this case, however, the successful party's objective in seeking an order was to establish the primacy of a declaratory award over a possible future inconsistent judgment.  In such circumstances Field J. indicated the court had jurisdiction to make a section 66 order because to do so would make a positive contribution to the securing of the material benefit of the award. 

Field J. further held that it is enough, in such a case, for the party seeking to enforce the award to show that it had a real prospect of establishing the primacy of the award over an inconsistent judgment. It is not necessary, nor is it appropriate, for the court finally to decide this hypothetical question, because the unsuccessful party to the arbitration will not have obtained an inconsistent judgment in a Member State at the time the court is dealing with the section 66 application.

Comments

In seeking to secure the benefit obtained by the successful party in the arbitration the judgement reflects the pro-arbitration traditions of the English courts.  The judgment however further complicates the interplay between arbitration proceedings in England and court proceedings elsewhere in the EU, highlighting once again the need for reform - which the EU Commission is pursuing as part of the broader amendments that are planned to the Brussels Regulation.

In our earlier e-bulletin on the Endesa case, we highlighted the fact that that decision in its application of the ECJ's decision in West Tankers gave rise to a worrying lack of reciprocity, in that:

1. a court in Member State A, where proceedings on the merits of a dispute have been commenced, is free to ignore a judgment in arbitration proceedings in State B, the seat of the arbitration (because the latter would fall within the arbitration exception to the Regulation); but
2. a preliminary ruling in proceedings in Member State A, invalidating the arbitration agreement, will bind the courts in Member State B if obtained prior to the matter being brought before them.

Field J's judgment adds a further complication by suggesting that if an arbitral tribunal acts expeditiously, issuing an Award prior to a preliminary ruling being issued in competing court proceedings, that Award may be enforced, at least in England, pursuant to section 66 of the Arbitration Act. 

This result may lead to a race not only to commence proceedings (familiar to many where there are competing jurisdictions), but where parallel arbitration and court proceedings are already underway, also to a race to obtain the first substantive ruling.  This could give rise to procedural abuses on both sides as each party seeks to slow down the proceedings commenced by the other – a situation that is not conducive to the expeditious resolution of disputes.

There is a further potential difficulty that arises from this decision.  Field J expressly declined to rule on what would happen if and when the Italian court renders a judgment that is irreconcilable with the English judgment on the arbitral award, if the Defendants seek to enforce the Italian judgment in England.  The English court would then be presented with a judgment of the Italian court it would ordinarly be bound to enforce pursuant to the Brussels Regulation, and a conflicting judgment of the English court raised in defence. 

Field J's reasoning suggests he believed the answer to this difficulty may lie in Article 34(3) of the Brussels Regulation, which provides that a foreign judgment (such as any issued by the Italian court) is not to be recognised under the Brussels Regulation if it is contrary to a judgment in the dispute between the same parties in the English courts.  However, if a judgment in arbitration proceedings, such as under section 66 of the Arbitration Act, falls within the arbitration exception to the Brussels Regulation (as the Court of Appeal's decision in the Endesa case suggests), this may preclude its triggering Article 34 of the Brussels Regulation.  The correct outcome in such circumstances is far from clear.    

It remains to be seen whether the Italian courts will in fact rule in favour of the Insurers and therefore whether this difficulty will arise in this case.  In the meantime however the case highlights the need for reform.  As previously reported here, the EU Commission has proposed amendments to the Brussels Regulation that, if adopted, would require the courts of a Member State whose jurisdiction is contested on the basis of an arbitration agreement to stay proceedings in favour of the courts at the seat of arbitration or the arbitral tribunal once the latter are seised.  This would be a welcome amendment, which in this case would have required the Italian courts to stay their proceedings.  If adopted, the amendments will hopefully resolve the difficult issues raised in West Tankers and other recent cases.

West Tankers Inc v Allianz SpA and Generali Assicurazione Generali SpA [2011] EWHC 829 (Comm)