The slow death of English maritime law?

In an opinion which is yet to be approved by the European Court of Justice, the Advocate General of the Court has opined that anti-suit injunctions are not available within the EU to support the arbitration process.

Introduction
The European Court of Justice (ECJ) has previously decided that anti-suit injunctions (ASI) are not available from the courts of a member state to prevent a party from commencing or prosecuting court proceedings in another member state, in breach of a jurisdiction clause in the contract.¹ Despite these decisions, many in the shipping and legal industries, at least in the UK, have believed that these decisions of the ECJ did not apply to or affect disputes subject to arbitration.

An article in Gard News issue No. 187² reported on the continuing debate over this issue. Particular reference was made to the FRONT COMOR case, a matter which involved the shipowners seeking and obtaining from the English courts an ASI in support of their (shipowners’) contention that court proceedings started in Sicily should be stayed in favour of the London arbitration clause in the charterparty between the shipowners and the charterers, whose insurers had brought the proceedings in Sicily. The issue was appealed to the House of Lords. By a majority of five to nil, the Lords found in favour the shipowners, but felt obliged to refer to the European Court of Justice the question of 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”.

Although the ECJ has not yet heard the case, the Advocate General (AG) has, on 4th September 2008,  given her opinion on this question. In an opinion which is likely to trouble those who believe that arbitration should be and is separate from court proceedings, or who would like to see the existing mechanism for holding parties to their contractually agreed place and method of dispute resolution enforced consistently, the AG has expressed the view that the above Regulation does prevent a court of a member state from granting an ASI in the circumstances outlined. In her view the decisive issue is not whether the ASI proceedings in England are within the arbitration exception in Article 1(2)(d) of EC Regulation 44/2001 (which updates the Brussels Convention) and therefore outside the scope of the Regulation, but rather whether the proceedings in Sicily are within the Regulation.

An outline of the AG’s opinion
The AG deals firstly with the legal framework.    Essentially, this is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the NY Convention) and the EC Regulation 44/2001.

The AG notes that all member states of the EU are parties to the NY Convention.   She makes reference to Article II (3) thereof, which says that: “The court of a Contracting State, when seised of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one 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”.

Regulation EC 44/2001 is then discussed. This is the regulation which the ECJ used as the basis for striking down ASIs in the context of court proceedings. The AG notes that Article 1 (2) (d) explicitly states that the Regulation shall not apply to arbitration.  The reason for this exception was to ensure that the Regulation was not incompatible with the NY Convention.  However, the AG goes on to refer to the travaux préparatoires to the Regulation in order to ascertain what is meant by “arbitration”. The AG considers that the subject matter of the dispute must be considered in order to establish whether proceedings fall within the “arbitration” category. If the court seised of the action has jurisdiction over that subject matter under the Regulation,  then the arbitration clause does not affect the court seised’s right to examine its own jurisdiction. According to the AG’s opinion, the subject matter of the dispute in question was a claim in tort, so the action in Sicily falls within the scope of Regulation EC 44/2001 which, in its Article 5 grants jurisidiction to courts in respect of tort in the following terms: “A person domiciled in a Member State may, in another Member State, be sued: (…) in matters relating to tort, delict or quasi-delict, in the courts of the place where the harmful event occurred or may occur”. It will be recalled that the proceedings in Sicily were commenced – by the insurers of the charterers of the FRONT COMOR – in tort, on the ground that they were not bound by the London arbitration clause in the charterparty, to which they (the insurers) argued they were not party (the High Court in London was of the opinion that by claiming a right of subrogation under the contract they were bound by the arbitration clause).

The AG then refers to the well-known provision of the Regulation which requires “any court other than the court first seised” to stay any proceedings commenced before it “until such time as the jurisdiction of the court first seised is established”.   This rationale was followed by the ECJ when considering ASIs in the context of court proceedings.    The AG notes that “any court other than the court first seised” must stay proceedings even if the proceedings brought elsewhere are brought in bad faith, a view which many may feel is somewhat inconsistent with justice, particularly since it is likely that a party who has started proceedings in bad faith is likely to want to prolong these as much as possible.

In previous decisions of the ECJ and again in the AG’s opinion, considerable reliance is placed on “the principle of mutual trust [between member states], which underpins the system of the [Brussels] Convention”. Here the principle means that, where proceedings that fall within the scope of the Regulation are commenced in the courts of a member state, the court seised must be trusted by the courts of other member states to determine the validity or otherwise of an arbitration agreement. The AG regards an anti-suit injunction as an interference of one national judicial system with another. The argument, which is often raised by those in favour of ASIs, that an ASI is aimed not at a foreign court but at a party to the dispute is considered irrelevant by the AG.

According to the AG, the crucial question is whether “the principles set out in Turner can be applied to anti-suit injunctions in support of arbitration proceedings”. “Turner” is the case of Turner v. Grovit,³ the leading ECJ case dealing with the unavailability of ASIs in cases where legal (i.e., court) proceedings are commenced in a jurisdiction other than that specified in the contract.    She concludes that these principles can be applied and proceeds to do so to the FRONT COMOR.

The AG’s opinion
The opinion of the AG is that the Regulation does prevent the courts of a member state from issuing an ASI in the circumstances described by the House of Lords.   This is consistent with the approach adopted by the ECJ in relation to court proceedings and what might be called the “Turner principles”.   The reasoning behind the AG’s opinion appears to be that, although arbitration itself is clearly excluded from the Regulation, the action by the insurers in the FRONT COMOR is not a claim which is subject to arbitration, but – since it is a claim purportedly made in tort and which is the subject of court proceedings – is a claim which falls within the Regulation.   It is this distinction which in the view of the AG is decisive and which allows the insurers to succeed with their argument that the Regulation does apply to their claim and thus that it is not open to the English courts to issue an ASI.

According to the AG, “it should be emphasised that a legal relationship does not fall outside the scope of Regulation No. 44/2001 simply because the parties have entered into an arbitration agreement.   Rather, the Regulation becomes applicable if the substantive subject-matter is covered by it.”

The European Court of Justice building.

Comment
The FRONT COMOR case remains to be resolved in the light of this opinion.   It should also be remembered that the ECJ has yet to consider the opinion.   Whatever the impact on this case, however, a decision by the ECJ to endorse the opinion may well have a significant impact on the resolution of disputes between parties domiciled in EU member states in general and on English lawyers and the English legal system in particular.  

As was highlighted by the House of Lords in their judgement, parties to a contract choose arbitration as a dispute resolution procedure largely because it is different from court proceedings.   It could be argued that the FRONT COMOR is a somewhat unusual case, in that the dispute over jurisdiction and the availability or otherwise of an ASI also concerns the charterers’ insurers who – they maintain – are not a party to the charterparty and are therefore not bound by the arbitration clause.   Arguably, however, the AG’s opinion goes further than this one case and indicates that, even in the absence of such a third party, someone domiciled in the EU who is indisputably party to the charterparty can seek to avoid both the arbitration clause and the place of arbitration by commencing proceedings first in an EU member state of their choice.   If the ECJ upholds such a position, it is likely to make the goal of achieving contract certainty (and therefore the assessment of risk and liability) far more difficult than it is already, creating a more potentially litigious and expensive landscape for those involved in owning, operating and chartering ships and their insurers.  

The risk exposure and potential liability of a shipowner under a charterparty providing for London arbitration in accordance with English law is relatively easy to assess.   This is because English law has many court judgments and arbitration awards on commercial and maritime matters which can be used to assess such risk and liability.   Decisions are relatively predictable, fair and honest.   The legal system in England is well-developed and many foreign parties know and trust it. This is why parties to maritime contracts often choose England and English law.   It is far more difficult to assess the risk and potential liability involved in arbitrating (or litigating) a maritime dispute in a jurisdiction with no such judgments and awards, where the first instance judge may be a local magistrate with no experience of shipping matters.

Despite the principle of mutual trust which is said to underpin the system, the reality is that  not all practitioners have the same confidence in certain other legal systems, given their different history and development. Parties to a contract and to a dispute usually prefer predictability and impartiality in their dispute resolution forum, which is often why they seek ASIs.   But what is the point of agreeing a law and forum clause for dispute resolution, only for one party to ignore it subsequently and start a “race to the court” to ensure that their court of choice is “first seised”?

Because so many shipping disputes are – by agreement – determined by arbitration in London in accordance with English law, it is English maritime law and lawyers who will be hardest hit by this opinion.   Maritime lawyers on the Continent, however, may be anticipating an increase in their work.   Many commentators have noted the somewhat unhappy co-existence within the EU of the Anglo-Saxon common law system and the civil law system which operates in many member states.   In her opinion, the AG refers to this problem.   The AG notes the position of the shipowners, the House of Lords and the UK government that “where the parties have contractually agreed to settle disputes (…) exclusively by arbitration, that legal relationship is completely removed from the outset from the national courts, apart from the courts at the arbitral seat”.   She goes on to observe that it “has always been a matter of dispute between the Anglo-Saxon and the continental European schools of law whether the exclusion of arbitration should, though, be understood in that broad sense”.

There is one small crumb of comfort in the opinion for owners, charterers and insurers.   The AG appears to state that, although the place in which disputes are determined can be the subject of “forum shopping”, it would seem that the law by which disputes are determined may remain unaffected.   She comments that “the court in Syracuse is in principle in a position to apply foreign law”.   This may well be correct, although experience suggests that it may have difficulty in applying English law as well as an English arbitral tribunal.   Regardless of the ease with which the court in Syracuse will be able to apply English law, there can be little doubt that, because of the need to involve English legal experts, the legal costs are likely to be substantially increased.

Conclusion
Assuming the AG’s opinion is endorsed by the ECJ, the decision will be a significant blow to the dominance of London arbitration.  As with jurisdiction clauses – following Turner v. Grovit – the door would appear to have been opened to a potential claimant to seek to ignore the dispute resolution forum stipulated in the contract and instead race to the (local) court of his choice in an attempt to secure the jurisdiction he considers will suit him best.   Some courts may decline jurisdiction in favour of the forum specified in the contract, but experience suggests such instances will be few and far between.

As mentioned above, it remains to be seen if the ECJ endorses the AG’s opinion.   Gard News will keep readers informed.

Footnotes
1 See article “The European Court of Justice and anti-suit injunctions” in Gard News issue No. 175.
2 “English law – Anti-suit injunctions remain alive and kicking – for now”.
3 Turner v. Grovit (Case C-159/02); [2004] 2 Lloyd’s Rep 169. See also article “European Court of Justice rules on exclusive jurisdiction clauses and anti-suit injunctions” in Gard News issue No. 176.