Declaratory award on tribunal's jurisdiction is enforceable despite proceedings elsewhere

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.

Background facts

A dispute arose between the ship-owner, BD Shipsnavo and African Fertilizers, under a bill of lading. The bill of lading incorporated the terms and conditions of an underlying charter-party, which included a clause referring disputes to arbitration in London.

Prior to the London arbitration, African Fertilizers commenced both arbitration and court proceedings in Romania. The High Court granted an injunction restraining them from continuing the Romanian arbitration, and arbitration was commenced in London in accordance with the arbitration clause. The High Court also granted an interim declaration that the arbitration clause in the charter-party was validly incorporated into the bill of lading and that the Romanian court proceedings and arbitration proceedings were in breach of the agreement to arbitrate.

Subsequently, the London arbitral tribunal granted a declaratory award in favour of BD Shipsnavo, holding that it had jurisdiction over its claim for a declaration of entitlement to a contribution. BD Shipsnavo obtained an order granting it leave, under section 66 of the Arbitration Act 1996, to enforce the award and to enter judgment against African Fertilizers. African Fertilizers then brought proceedings before the Commercial Court to set aside that order. Its application was based on two limbs:

• First, it argued that section 66 does not apply to a purely declaratory award. 
• Second, that a judgment entered under section 66 does not constitute a judgment within the meaning of Article 34(3) of the Brussels Regulation (which states that a foreign decision is not recognised if it is irreconcilable with a national judgment). Therefore it should not impede recognition and enforcement of a future decision of the Romanian courts.

Decision

With very similar reasons to those given by Field J in West Tankers Inc v Allianz Spa and another [2011] EWHC 829 (Comm), Beatson J refused African Fertilizers' application.

As to the first limb, Beatson J held that section 66 does apply to a declaratory award. Its purpose is to provide the winning party in arbitration with a means to obtain the material benefit of the award – such as when a party needs to establish the primacy of the award over a subsequent inconsistent court judgment.

As to the second limb, Beatson J distinguished this case from Solo Kleinmotoren v Boch [1994] ECR I-2237, in which the European Court of Justice held that a settlement agreement recorded in a court order is not a judgment for the purpose of Article 34(3). Unlike a settlement agreement, the outcome of an arbitration is not consensual. Moreover, in such circumstances, the refusal to enforce an inconsistent judgment according to Article 34(3) is necessary in order to ensure legal certainty. Therefore it held that the judgment entered in terms of the declaratory award constitutes a judgment under the Brussels Regulation.

Commercial impact and context

Whilst the result can be considered to be pro-arbitration, for upholding the parties' wishes to arbitrate and their award, it is not without difficulty. The Court held that the resulting English judgment would constitute a judgment under the Brussels Regulation and, as such, it could be used to resist the recognition and enforcement of any subsequent irreconcilable Romanian judgment obtained. This potentially leaves inconsistent judgments circulating within Europe.

Current proposals, however, to reform the Brussels Regulation, (which, amongst other things, governs the deference of courts within Europe to each other's rulings) offer alternative solutions to the issue of how arbitration and court proceedings within the EU should relate to each other. The latest proposal to the European Parliament (by its Committee on Legal Affairs) would broaden the Regulation's arbitration exclusion such that it would encompass rulings on arbitral competence. If the resulting English judgment in this case were not recognised as a Regulation judgment under Article 34, it could not be used to resist the recognition and enforcement of a Romanian judgment. However, the proposal would also oblige courts of a Member State other than at the seat of the arbitration to stay any proceedings if its jurisdiction has been contested on the basis of an arbitration agreement and a tribunal has been seised of the case, or proceedings in respect of the arbitration agreement have been commenced at the court of the seat. This solution would prevent conflicting decisions within Europe.

We will continue to report on developments in this area. The appeal of the latest West Tankers decision is expected shortly.

African Fertilizers and Chemicals Nig Ltd (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg [2011] EWHC 2452 (Comm)

A version of this Herbert Smith briefing has also been published by Practical Law Company.