From: Herbert Smith LLP at www.herbertsmith.com

United Kingdom
February 27 2007

“On 21 February 2007, the House of Lords delivered a decision in which they requested the European Court of Justice (”ECJ”) to consider whether it is “consistent with EC Regulation 44/2001 for a court of a Member State to make an order to restrain a person from commencing or continuing proceedings in another Member State on the ground that such proceedings are in breach of an arbitration agreement.” While referring the issue to the ECJ for final decision, the House of Lords commented that arbitration fell outside the scope of Regulation 44/2001 (”the Regulation”) and, therefore, in its opinion, any restrictions regarding the granting of injunctions under the Regulation should not apply in the context of proceedings concerning arbitration.

Facts and First Instance

The case arose following an incident where a vessel, which was owned by West Tankers and chartered to Erg Petroli SpA (”Erg”), collided with a jetty which was owned by Erg. Erg claimed upon its insurers (”RAS”) and also commenced arbitration proceedings in London under the charterparty agreement against West Tankers for the remainder of the loss. Some time later, RAS began proceedings against West Tankers in an Italian court seeking to recover the sum it had paid to Erg. West Tankers applied to the English courts to issue an injunction restraining RAS from continuing the Italian proceedings, arguing that the dispute arose out of the charterparty and, therefore, RAS (which was claiming by right of subrogation) was bound by the arbitration clause in that agreement.

Colman J in the High Court agreed that the right of RAS to bring claim against West Tankers by subrogation was subject to the arbitration clause in the charterparty, issuing a declaration to this effect and granting the requested injunction. During the proceedings, RAS questioned whether it would be consistent with the Regulation (formerly the Brussels Convention on Jurisdiction 1968) for an English court to grant an injunction restraining proceedings in another Member State. As Colman J made his decision to grant the injunction in accordance with the Court of Appeal decision in Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Assurance Co Ltd, leave was granted to appeal on this issue directly to the House of Lords.

House of Lords

The House of Lords referred the question to the ECJ for final determination, concluding that there were varying views on the issue and that it was a matter of considerable importance. However, the Court suggested that, in its opinion (delivered by Lord Hoffmann), granting an injunction in this case would not be inconsistent with the Regulation as the proceedings fell outside the scope of the Regulation.

The Court noted that the Regulation prevents courts of Member States from interfering with the jurisdiction of courts of other Member States by issuing injunctions which restrain a party from commencing or continuing litigation in that State. However, it noted that arbitration was specifically excluded from the scope of the Regulation (pursuant to article 1(2)(d)) and that this exclusion extended to court proceedings concerning arbitration. The Court also noted that there were no other uniform rules within the European Community which regulate arbitration.

While arbitration is excluded from the Regulation, the House of Lords cautioned that whether particular proceedings were bound by the Regulation depended on whether arbitration could be considered to be the “subject matter” of the proceedings. Arbitration is the subject matter of a proceeding if that proceeding serves “to protect the right to have the dispute determined by arbitration.” The Court considered that the proceedings before it concerned the protection of the contractual right to enforce the arbitration clause and, therefore, met the “subject matter” criterion and should not be subject to the terms of the Regulation.

In addition, the Court suggested that it would be both impractical and potentially detrimental to Member States to transfer the jurisdictional principles in the Regulation to arbitration. The purpose of arbitration would be undermined by principles such as giving priority to the defendant’s domicile, and the rationale for including an arbitration clause in an agreement was to ensure that disputes remained outside the scope of any national court. Moreover, Member States would become unattractive arbitration venues if such rules applied within the European Community but not in other commonly used seats of arbitration.

The House of Lords further acknowledged that it is commonplace for English courts to “restrain parties to an arbitration agreement from instituting or continuing proceedings in other courts” and that the Arbitration Act 1996 gives the Court the power to grant interim injunctions in relation to arbitral proceedings.

One of the key rationales for preventing anti-suit injunctions in litigation proceedings relates to the notion that the courts within Member States should trust each other to apply the Regulation. Lord Hoffmann suggested that, in the case of arbitration, trust should be placed in the arbitrators and the courts with supervisory jurisdiction to determine whether a valid arbitration agreement exists and, if so, to enforce that agreement by preventing litigation which undermines it.

Comment

While the House of Lords has suggested that the restriction under the Regulation on anti-suit injunctions should not apply when the dispute is subject to an arbitration agreement, it also acknowledged that there are differing views on this matter within the European Community. Whether the ECJ will adopt the reasoning of the House of Lords remains to be seen, but the decision could have considerable practical implications for the resolution of commercial disputes in Europe.”