This February saw the European Court of Justice ("ECJ") hand down its nervously anticipated decision in the case of Allianz S.p.A. v West Tankers Inc, which largely follows the Advocate General's opinion on this case delivered last September.

Background

In August 2000, the Front Comor caused damage to a jetty in Syracuse (Italy) when it collided with it.  The owners of the jetty, Erg Petroli S.p.A. ("Erg") claimed compensation from its insurers, Allianz and Generali, and commenced arbitration proceedings in London against West Tankers Inc. ("West Tankers") (the vessel owners) for the excess, in accordance with an arbitration clause in the charterparty.

Allianz and Generali then brought proceedings on 30 July 2003 against West Tankers in Italy for negligence (a tort).  Under Article 5 of Regulation number 44/2001 on the recognition and enforcement of judgments in civil and commercial matters ("Regulation") (also known as the Brussels Regulation) the place for suing in relation to a tort is in the local court where the harmful event occurred or may occur.  West Tankers challenged jurisdiction in the Italian courts on the basis of the existence of the arbitration agreement, and also brought parallel proceedings in September 2004 in England, seeking an anti-suit injunction against Allianz and Generali continuing the Italian proceedings.

The English courts granted West Tankers an anti-suit injunction, but this decision of the English courts was appealed by Allianz and Generali to the House of Lords (who then referred the question to the ECJ) on the basis that granting of the injunction was contrary to the Regulation.

The Regulation

Article 27 of the Regulation provides:

"where proceedings involving the same cause of action and between the same parties are brought in the courts of different member states, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established."

Arbitration, however, is specifically excluded from the ambit of the Regulation by Article 1.2(d) of the Regulation.

Whilst there was already existing case law from the ECJ stating that the granting of anti-suit injunctions was incompatible with the Regulation, the English court had continued to grant anti-suit injunctions in support of arbitration, on the basis that the grant of these injunctions fell outside the Regulation, because of the specific exclusion.  When this case was appealed to them, the House of Lords referred a question to the ECJ as to whether anti-suit injunctions to give effect to arbitration agreements were compatible with the Regulation.

Ruling of the ECJ

The ECJ looked at the subject of the proceedings in the court first seised (the Italian court) to decide whether these fell within the arbitration exception.  It found that the Italian proceedings did not fall within the arbitration exception, as the main issue in those proceedings was whether West Tankers had negligently caused damage to Erg, and the question of jurisdiction in the context of the arbitration agreement was merely a preliminary issue to that main cause of action.

When considering the application of the Regulation, emphasis was put by the ECJ on the general principles of the Regulation, stating that the use of an anti-suit injunction to prevent a court of a member state from ruling on whether it has jurisdiction to hear a matter: "runs counter to the trust which the Member States accord to one another's legal system and judicial institutions".

Unanswered Questions

The ECJ did not deal with many of the concerns expressed by the House of Lords regarding the possible effects of the removal of their power to grant anti-suit injunctions in favour of arbitration proceedings which have London as their seat.  The House of Lords had raised the following concerns:

• in choosing to refer their disputes to private arbitration, the parties wish to avoid becoming involved in protracted proceedings before national courts, and these wishes should be respected;
  
• London would be threatened with a competitive disadvantage as compared to other international seats of arbitration such as New York, Bermuda and Singapore, if English courts could no longer issue anti-suit injunctions (unlike the courts of those places);and
  
• there is a danger that the arbitral tribunal itself and a court of another member state may reach different decisions on the scope of the arbitration clause, which may result in conflicting decisions on the merits, and possible difficulty in enforcing the award of either the court or the arbitral tribunal.

These concerns were considered by the Advocate General in her opinion (who was mainly dismissive of the weight they could carry in deciding the effect of the Regulation, apart from the third concern, in relation to which she suggested that arbitration should be brought within the scope of the Regulation), but were not touched on by the ECJ itself.  In parallel, however, the European Commission is considering the possibility of extending the Regulation to include arbitration, which would solve problems of possible dual or conflicting awards and decisions on jurisdiction.

What does this mean in practice?

The so-called "race to issue" and "forum shopping", which the English courts had sought to avoid by claiming exclusive jurisdiction where the arbitration agreement referred to a seat in London, is now firmly back on.  In principle, as all member states are party to the New York convention on arbitration, which states that a court: "shall, at the request of the parties, refer the parties to arbitration unless it finds that the said agreement is null and void, inoperative or incapable of being performed", the location in which the jurisdiction battle takes place should not be significant.  However, the different systems of each member state may mean that there is a possibility that courts in different jurisdictions would reach different decisions on the extent of jurisdiction of an arbitration clause.  This is especially true as between London and the courts of other member states, as London operates with a common law system, whereas other member states operate a civil law system.  Also, some local courts are notoriously slow at bringing matters to hearing stage.

The English courts still remain free to grant anti-suit injunctions against proceedings brought outside of the member states, and commentators' preliminary views appear to be that the effect of the judgment on London's position as a leading arbitral seat will be minimal, as the anti-suit remedy is considered only to be a minor factor in most parties' choice of seat. 

Progress towards a possible amendment to the Regulation to bring arbitration within its ambit will be watched with interest.