Court of Appeal affirms West Tankers pro-arbitration decision endorsing an arbitral award in the face of a possible inconsistent Italian judgment

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 [2012] 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.

Background

The history of the case will be familiar to many and can be reviewed here. In short, 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 (Allianz SPA & Generali Assicurazione Generali SPA) and also commenced arbitration proceedings in London against West Tankers for the excess. 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 pursuing the Italian court proceedings. On appeal to the House of Lords, their Lordships referred to the ECJ the question whether it was consistent with 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. The ECJ decided that although arbitration is expressly excluded from the Brussels Regulation, an anti-suit injunction is not compatible with the Brussels Regulation, because it "necessarily amounts to stripping that court of the power to rule on its own jurisdiction" and "runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions".

To circumvent this ruling, West Tankers sought to enforce its English award (which had confirmed that it was under no liability to Erg) in the English courts. It was 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. They obtained an order granting leave to enforce the award pursuant to s. 66(1) and entered a judgment against the insurers in the terms of the award pursuant to s. 66(2).

When the insurers applied to have this order set aside in the High Court, it was upheld on the basis that an order to enforce the declaratory award may permit West Tankers to establish the primacy of the declaratory award over any subsequent inconsistent judgment of the Italian courts. Field J. concluded that the purpose of s. 66 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.

Court of Appeal decision

Lord Justice Toulson, in the leading judgment, gave an expansive interpretation of the application of s. 66 to arbitral awards and the phrase "enforced in the same manner as a judgment to the same effect". In his view, that could encompass any means of giving judicial force to an award – not just the normal forms of execution of a judgment. He rebutted the insurers' arguments that an arbitral declaratory award is not capable of being enforced as it is not coercive in form. Even a negative declaratory award – such as the declaration of non-liability in this case – could be enforced under s.66 if it is appropriate to do so, ie because this might assist in securing the primacy of the award. In reaching this conclusion he demonstrated an appreciation of the need for courts to support arbitration to uphold the efficacy of awards.

As well as upholding the earlier West Tankers decision, Toulson LJ approved the subsequent African Fertilisers and Chemicals NIG Limited v BD Shipsnavo GMBH and Co Reederikg KG [2011] EWHC 2452 Comm. In that case, Beatson J acknowledged that "provided the terms of the award are sufficiently clear there is now no reason why a declaratory award cannot be enforced under section 66". The only types of awards envisaged that would not be enforceable under s.66 were orders to pay an unquantified sum (as in the case of Margulies Brothers Limited v Dafnis Thomiades and Co (UK) Limited [1958] 1 Lloyd's Rep 205).

Toulson LJ also rejected the insurers' argument that s.66 enforced the rights determined by the award rather than the award itself. In his view this distinction was overcomplicated. "As with any judgment or award", he said, "…its enforcement is the enforcement of the right which the award has established". He acknowledged that a party seeking to enforce an award could bring an action on the award and then obtain a declaration in its terms. However, s.66 provided a simpler alternative: the court "in an appropriate case" could give leave for a declaratory award to be enforced in the same manner as a judgment. The resulting judgment could thereby be entered in the terms of the award.

Comments

In this decision Toulson LJ provides interesting clarity on the scope of s.66. However, whilst the judgment itself turns on the interpretation of the statutory provision, it is the ramifications in the wider arena of policy that will be more closely scrutinised. Toulson LJ did not specifically confirm that the resulting judgment was a judgment for the purposes of Article 34 of the Brussels Regulation. This would depend on whether it fell within the arbitration exemption in the Regulation which is still unclear pending reform. However, the rationale behind the judgment of Field J was that judgment entered in terms of the award could enable West Tankers to secure the benefit obtained in the arbitration in the face of a potential conflicting judgment. The point remains to be decided if and when the insurers seek to enforce a resulting Italian judgment in the English courts under the Regulation.

Whilst the Court of Appeal provides a degree of comfort and clarification, the reform of the Brussels Regulation reform is still eagerly anticipated. It is hoped that the revised Regulation and, particularly, the arbitration exception within it, will be conclusive and clarify how arbitration agreements are to be protected. If, indeed, the judgment in this case were to be considered an arbitration related judgment within the scope of the exemption, this decision would not have its desired effect.

What is clear is that there is no perfect solution. As a result of this ruling, parties facing parallel arbitration and court proceedings may well consider it worthwhile to race to obtain a 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.