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Gard News 187 - Anti-suit injunctions remain alive and kicking

 

English law - Anti-suit injunctions remain alive and kicking - for now


The House of Lords has recently referred to the European Court of Justice the question of whether an anti-suit injunction may be granted by an English court to stop a party from continuing legal proceedings in the courts of another EU state in breach of a London arbitration clause.

Articles in several recent issues of Gard News1 make it clear that anti-suit injunctions will, in certain circumstances, continue to be granted by the English courts to parties who seek contract certainty: the ability to rely on any disputes being decided in accordance with the law and in the jurisdiction agreed at the time the contract was fixed. Nevertheless, the law surrounding such injunctions remains under review and development. A recent case to come before the English courts concerns the FRONT COMOR,2 on which Gard’s clients obtained a resounding victory in the House of Lords, with all five judges deciding in favour of Gard’s clients, the owners of the vessel. Unfortunately, despite such a clear-cut victory, the case is not finished as the House has referred two legal issues to the European Court of Justice (ECJ). Judgment from the ECJ is awaited.

Background
The anti-suit injunction (ASI) is a common law concept. It does not exist in civil law jurisdictions. It is most highly developed in England, where such injunctions have been granted for some 170 years, but it is only relatively recently (in the last 15-20 years) that it has achieved widespread publicity.

Parties seeking an ASI are generally seeking to prevent another party to a dispute from starting or continuing with legal or arbitration proceedings in a jurisdiction other than that stipulated in the contract. The reason(s) why a party may have started legal or arbitration proceedings in a different jurisdiction are, for the purpose of this article, not material, although it is often the case that a party will start proceedings in his own country, perhaps on the basis that he thinks that “home advantage” will work in his favour. Many shipping contracts, even between two (or more) non-English parties, provide for disputes to be determined by the English courts, or by arbitration in London, in accordance with English law. In such circumstances, therefore, it is to the English courts that an aggrieved party must apply if he wishes to seek an ASI. It is important to note that an English court will not become involved if the contract does not provide for disputes to be determined by the English courts, or by London arbitration.

What is the effect of an ASI if one is granted? An ASI is an order from an English court against the party who has started proceedings in a non-contractual forum requiring that party to stop pursuing those proceedings (or not to start proceedings, if proceedings have not been started in the non-contractual forum) and instead to stick to the law and jurisdiction provided for in the contract. It is important to note that the ASI is not aimed at the foreign court, but at the party who, according to the English court, has wrongly invoked the jurisdiction of that court. Foreign courts have not always seen it that way, however, and many feel that ASIs are an unwarranted attempt by the English courts to interfere in matters outside their own jurisdiction. The other side of the coin is that the English courts would not have to become involved if parties did not try to avoid terms of a previously-agreed contract, or if the non-English court enforced the law and jurisdiction clause.

Whatever the rights and wrongs, an ASI can be a powerful tool, in that a failure to abide by the terms of an ASI is almost certainly likely to be regarded by the English court as contempt of court. The consequences of such contempt are serious. Depending on the precise terms of any order issued by the English court, an offending party could well find that he is fined a substantial sum, that, if he does not pay the fine, his assets within the (English) jurisdiction are seized and/or that he, or in the case of a company, its directors, are exposed to arrest. The risks involved in ignoring an ASI are not to be taken lightly.

Recent developments
Broadly speaking, the authority and ability of an English court to grant an ASI in circumstances where a party has, in breach of an English law and jurisdiction clause in the contract, already started proceedings in another state which is a member of the EU no longer exists. Timing is important here, as an application to an English court to issue an ASI can be made before proceedings are started in another EU state. However, if proceedings have been started in the court of another EU state, this court will have become the court “first seized” and must, under EU law, be allowed to decide its own jurisdiction. Further, the English court must stop all action in England and allow the court “first seized” to make such a decision. This is the case even if the non-English court takes an unreasonable amount of time to make its decision, or if the commencing party was taking such action expressly to frustrate or avoid proceedings started in accordance with the (English) law and jurisdiction clause in the contract. The non-English court can decline jurisdiction in favour of England, but there are few known examples where this has happened and experience indicates this is unlikely.

The relevant decisions of the ECJ, on which the above comments are based,3 are well-known to practitioners and have been reported in the issues of Gard News mentioned above and elsewhere. Such decisions of the ECJ do not apply where proceedings have been started in a non-EU state in breach of an English law and jurisdiction clause. Here, the position of the English courts and their ability to grant an ASI remains unchanged.

It is also important to note that the decisions of the ECJ mentioned above concern contracts including English law and jurisdiction clauses, i.e., clauses providing for disputes to be determined by the English courts. It is, however, explicitly stated by the EU Council Regulation under which both the above cases were decided (EU Regulation 44/2201) that the Regulation shall not apply to “arbitration”. Thus where the contract provides for disputes to be determined by London arbitration, the Regulation would appear to have no effect and it seems that the opportunity remains for a party to seek an ASI from the English courts to enforce a London arbitration clause, even if, in breach of the arbitration clause, proceedings have already been started in the courts of an EU state. This at least is the position taken by the English courts, a position re-stated in the recent decision of the House of Lords in the FRONT COMOR.

The FRONT COMOR case
The basic facts are as follows. The FRONT COMOR is a crude oil tanker of just under 78,000 GT. In August 2000, while under compulsory pilotage, she made direct contact with and damaged a jetty in Syracuse, Sicily. The owners of the jetty were also the charterers of the vessel. As is common under the Norwegian Marine Insurance Plan, liability for such damage was covered by the hull, not the P&I, insurers. Gard Marine were the leading hull insurers.

The damage to the jetty was serious. The jetty owners/charterers (the claimants) claimed up to the limit of their insurance policy and sought recovery of the amount exceeding the limit from the shipowners. The latter claim was brought under the charterparty, by way of arbitration in London, in accordance with the arbitration clause in that contract. The shipowners defended this claim and maintained that, under the terms of the charterparty, they were not liable for the damage.

While this arbitration was being conducted, the claimants recovered from their insurers, two Italian insurance companies (the insurers). In July 2003, almost three years since the incident, the insurers started proceedings against the shipowners before the Tribunale di Siracusa. The claim was stated to be made outside the contract (i.e., the charterparty), pursuant to a statutory right of subrogation allowed under Italian law. It seems likely that the claim was framed by the insurers in this way in an attempt to avoid them being “caught” by the London arbitration clause in the charterparty. It is understood that it was clear to the parties that, under both English and Italian law, the shipowners were entitled to rely on the terms of the contract, whether the claim was brought under the contract or in tort, so it may be that the insurers felt their chances of success were better on their “home ground” than in England.

Whatever the reason, just over a year later, the shipowners decided to start proceedings against the insurers before the English courts. The owners were seeking a declaration from the English court that the claim brought by the insurers in Italy was in fact a claim which arose under the charterparty and therefore that the insurers were bound by the London arbitration provision therein. In addition, the shipowners asked the court to issue an injunction preventing the insurers from continuing with the proceedings before the Tribunale di Siracusa and requiring them to pursue the claim only by way of arbitration on London.

The decision of the English court
At first instance, the High Court decided in favour of the shipowners on both points. In particular, the judge decided that the insurers were standing in the shoes of their insured and thus were subject to the arbitration clause in the charterparty. The declaration sought by the shipowners was granted. As to the injunction sought, the judge held that he was bound by an earlier Court of Appeal judgment on essentially the same question, which had found in favour the party seeking an injunction (in that case, a mutual insurance association). The judge therefore followed the Court of Appeal’s decision in the previous case and granted the injunction.

A somewhat unusual situation now arose. Because the question of whether an injunction could be granted had been heard previously by the Court of Appeal (in the case mentioned above), the judge at first instance decided that this case could be appealed directly to the House of Lords. Normally, an appeal from a High Court judgment would be heard by the Court of Appeal. The judge also indicated that two other questions, which were not, in his view, matters involving European law, could be appealed to the House of Lords. These questions were:
– whether granting an injunction was inconsistent with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards;
– whether an English court should exercise its discretion to decline to prevent a claimant from pursuing proceedings in the courts of an EU member state.

On both points, the judge’s answer was “no”. Effectively, therefore, the judge decided both points in favour of the shipowners.

The appeal to the House of Lords
Given the amount involved and the legal principles involved, the case was appealed directly to the House of Lords. By a majority of five to nil, the Law Lords decided that the judge at first instance had been correct in his decision concerning the two above points relating solely to English law. These points are therefore decided and can not be appealed any further.

The main question was, as described by Lord Hoffman, who gave the leading judgment:
“whether a court of a Member State may grant an injunction against a person bound by an arbitration agreement to restrain him from commencing or prosecuting proceedings in breach of the agreement in a court of another Member State which has jurisdiction to entertain the proceedings under EC Regulation 44/2001.”

The insurers argued that restraining the proceedings brought in Italy in breach of the arbitration agreement would be an indirect interference with the jurisdiction of national courts under EU Regulation 44/2201, while owners argued that the arbitration exception exists in the Regulation to protect the right to arbitrate.

In the opinion of Lord Hoffman, the answer to the question was not obvious, in which circumstance the Regulation requires that the court of a member state refers the question to the ECJ for a final and definitive decision. Lord Hoffman stated that it was “the duty of the House” to refer the question to the ECJ.

At the same time, Lord Hoffman gave his own opinion on this question, “in case it should be of assistance to the Court of Justice”. In his opinion, Lord Hoffman expressed the clear view that arbitration was and is outside the Regulation and that ASIs which relate to arbitration should, similarly, be outside. He commented that:
“Arbitration, however, is altogether excluded from the scope of the Regulation by article 1(2)(d). The basic principles by which the Regulation allocates jurisdiction … are entirely unsuited to arbitration … there is no set of uniform Community rules which Member States can or must trust each other to apply.”

It was evident that he and his fellow Law Lords felt it important to protect the right of the parties to have their disputes resolved by arbitration and a clear distinction was drawn between matters which are subject to arbitration and matters which are subject to court proceedings. In support of his opinion, Lord Hoffman referred to a number of judgments by courts of member states and to various EU commentators, as well as to the ECJ judgments in the cases mentioned above.

His opinion, which clearly supports the shipowners’ position in this case, was endorsed by the other four Law Lords. However, the final word rests with the ECJ. Gard News will keep readers informed about this important matter which, however the ECJ decides, will have a significant impact on all parties who may become involved in disputes involving one or more party(s) domiciled within the (recently enlarged) EU, where the contract provides for disputes to be resolved by arbitration in London.

Footnotes
1 See articles “The European Court of Justice and anti-suit injunctions” in Gard News issue No. 175, “European Court of Justice rules on exclusive jurisdiction clauses and anti-suit injunctions” in Gard News issue No. 176, “English law – The re-birth of the anti-suit injunction?” in Gard News issue No.177 and “The anti-suit injunction – Some more pieces in the puzzle” in Gard News issue No. 178.
2 West Tankers Inc v RAS Riunione Adriactica di Sicurta SpA [2007] (UK HL 4).
3 Gasser v. Misat (2003 AER 148) and Turner v. Grovit (2004 AER 485).

 

Gard News 187, August/October 2007

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.