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Gard News 206, May/July 2012

Owners of the FRONT COMOR seek to protect their position pursuant to London arbitration clause.

Nearly twelve years since the incident itself, the FRONT COMOR case1  continues to keep lawyers, arbitrators and judges busy. Previous articles in Gard News2 have commented on the decision by the European Court of Justice affirming an opinion of the Advocate General that anti-suit injunctions are not available within the EU to support the arbitration process.  This article looks at the steps taken by the owners and insurers of the vessel to protect their position pursuant to the London arbitration clause in the charterparty between owners and Erg Petroli SpA (Erg), the charterers.

It will be recalled that Erg's claims were referred to arbitration in accordance with the London arbitration clause in the charterparty.   It was only after the arbitration was proceeding that Erg's insurers commended action against the shipowners in the courts in Sicily.    Despite such proceedings, the arbitration continued and in November 2008 the tribunal in London issued its award.   It held that it had jurisdiction to hear and decide the matter and found that the shipowners had no liability, either contractual or tortious, towards Erg or its insurers.   Such a decision, made by a respected tribunal of London arbitrators pursuant to a London arbitration clause in the charterparty, might, in many cases, have been the end of the story, but Erg's insurers persisted with their action in Sicily.   It was this action and owners' attempts to obtain the support of the English courts in stopping it in favour of arbitration in London which ultimately resulted in the decision of the European Court of Justice reported earlier.

Having obtained an arbitration award in their favour, the shipowners sought leave from the English High Court to enforce the award as a judgment.   Leave to do so was granted and judgment was entered accordingly.   This left Erg's insurers in a situation where there was an English High Court judgment in their disfavour.    Even if their action in the courts in Sicily succeeded, the insurers would face a situation where the security they held responded to English law and jurisdiction and where the shipowners would be able to counter any judgment of the Sicilian courts with the judgment of the English courts.    Erg's insurers applied to the High Court to set aside the order of the court that the award be enforced as a judgment, but this was dismissed (by a different judge from the one who had made the order).

Declining to accept defeat on this point, Erg's insurers appealed the English Court judgment to the Court of Appeal, which gave judgment on 24th January 2012.3

The appeal
In essence,  the three appeal court judges decided that there is power under the Arbitration Act 1996 for the court to order judgment to be entered in the terms of an arbitration award, where the award takes the form of a negative declaration (i.e., that the successful party has no legal liability to the other party).    Particular focus was placed on section 66 of the Arbitration Act 1996, which states the following:

"1. An award made by the tribunal pursuant to an arbitration agreement may, by the leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

2. Where leave is so given, judgment may be entered in the terms of the award".

There was much argument as to how the word "enforced" should be interpreted.    Erg's insurers said that a declaratory judgment, particularly a negative declaratory judgment (which does not require anybody to do anything) - was not something which could be "enforced" (because no such action is required or necessary). The shipowners maintained that this interpretation was too literal.   In their view, the purpose of section 66 of the Arbitration Act is to support the arbitral process and to provide a simpler procedure for ensuring compliance with the award rather than having to bring an action to enforce it.   In owners' opinion, the distinction between "recognition" and "enforcement" was immaterial in the context of an English arbitration award, not least because an English arbitration award is automatically binding under section 58 of the Act.

The Court of Appeal agreed with the shipowners and dismissed the appeal. The court decided that the broader interpretation contended for by the owners was consistent with the way in which section 66 should be applied.

The judge giving the leading judgment stated that "at common law a party to an arbitration who has obtained a declaratory award in his favour could bring an action on the award and the court, if it thought appropriate, could itself make a declaration in the same terms. The purpose of section 66 is to provide a simpler alternative route to bringing an action on the award, although the latter possibility is expressly preserved by section 66(4). I cannot see why in an appropriate case the court may not give leave for an arbitral award to be enforced in the same manner as might be achieved by an action on the award and so give leave for judgment to be entered in the terms of the award."

This decision should be an important tool to those who are party to a contract providing for London arbitration, but who face litigation on the same issue in another EU country and thus run the risk of conflicting decisions being given.

We should like to acknowledge the assistance of Ince & Co., lawyers for the owners and insurers of the FRONT COMOR, in the preparation of this article.

1West Tankers Inc. v. Allianz SPA and Generali Assicurazione Generali SPA.
2 See articles "The FRONT COMOR - The European Court of Justice decision" in Gard News 194 and "The slow death of English maritime law?" in Gard News 193.
3West Tankers Inc. v. Allianz SpA and Generali Assicurazione Generali SPA (The FRONT COMOR) [2012] EWCA Civ 27.

Any comments on this article can be e-mailed to the Gard News Editorial Team.