The FRONT COMOR - The European Court of Justice decision

The FRONT COMOR – The European Court of Justice decision

European Court of Justice affirms the opinion of the Advocate General.

An article in Gard News issue No. 193¹ outlined and discussed the opinion of the Advocate General (AG) of the European Court of Justice (ECJ) on the question referred to the ECJ by the House of Lords, namely:

“Is it consistent with Regulation No 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?”

As expected, the ECJ has agreed with the opinion of the AG that the answer to the above question is “no”.

The article in issue No. 193 outlined the facts of the case and legal issues, which shall not be repeated here.   However, it should be recalled that in that case the insurers of a damaged jetty – not the owners of the jetty (who were also the charterers of the vessel at the material time) – brought a court action against the shipowners in Sicily. The shipowners then argued that the action was in breach of the agreement in the charterparty to refer all disputes arising thereunder to arbitration in London in accordance with English law.    The insurers’ argument was that they were not bound by the law and arbitration agreement in the charterparty: their insured, not them, were so bound.

In the opinion of the ECJ, the court proceedings in Sicily have, amongst other things, been commenced to examine a preliminary issue of the validity or the applicability of the arbitration agreement as concerns the applicant insurers.    Both the AG and the ECJ consider it is for the Sicilian court to determine its own jurisdiction to hear such an issue. The ECJ therefore has held that it is incompatible with the purpose of Regulation No 44/2001 for a court of any other country within the European Economic Area to decide that the court seised should be restrained in any way in determining its own jurisdiction.2 Some extracts of the ECJ’s decision may serve to outline its views:

“…an anti-suit injunction, such as that in the main proceedings, is contrary to the general principle which emerges from the case-law of the Court of the Brussels Convention, that every court seised itself determines, under the rules applicable to it, whether it has jurisdiction to resolve the dispute before it.”

“Thus in no case is a court of one Member State in a better position to determine whether the court of another Member State has jurisdiction.”

“…such an anti-suit injunction also runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions and on which the system of jurisdiction under Regulation No 44/2001 is based.”

“…if, by means of an anti-suit injunction, the Tribunale di Siracusa were prevented from examining itself the preliminary issue of the validity or the applicability of the arbitration agreement, a party could avoid the proceedings merely by relying on that agreement and the applicant, which considers that the agreement is void, inoperative or incapable of being performed, would thus be barred from access to the court before which it brought proceedings under Article 5(3) of the Regulation No 44/2001 and would therefore be deprived of a form of judicial protection to which it is entitled.”

It is important to note in this regard that the ECJ has highlighted that courts in states which have ratified the New York 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), when seised of an action in respect of a matter in respect of which the parties have made an arbitration agreement, must, at the request of one of the parties, refer the parties to arbitration. This is set out in Article II(3) of the New York Convention. The exception to this rule is that the court seised finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

Hence, if the court seised is in a state that has ratified the New York Convention, the mere fact that it shall decide its own jurisdiction in the first instance, does not mean that it may not be bound to refer the matter to arbitration in accordance with the rules of the New York Convention. It would be in contravention to the rules of the New York Convention were the court to hear the case on the merits unless it finds that the arbitration agreement is either null and void, inoperative or incapable of being performed. However, some may take the view that the ECJ’s decision may lead to a greater risk of court decisions concerning the validity and applicability of arbitration agreements that would be incompatible with this core provision of the New York Convention, as well as an increased number of disputes in different countries within the European Economic Area concerning the very issue of whether an arbitration agreement is null and void, inoperative or incapable of being performed. If so, it would be considered by many to be a step in the wrong direction given that parties enter into arbitration agreements as a means to settle any differences out of court in a forum of their own choice.

Adopting the same reasoning as the AG, the ECJ has decided that the insurers’ court action in Sicily is an action brought in tort.   Thus, in their view, it falls outside the application of the charterparty contract and the law and arbitration clause therein, with the result that it falls within Regulation No 44/2001.

Running through the judgment – and the AG’s opinion – is a clear dislike of anti-suit injunctions and what is seen by the AG and ECJ as “interference” by the English court in the exercise by a foreign court of its own jurisdiction.  

Many observers, particularly shipowners, operators and charterers, who opt for English law and London arbitration in their charterparties, and English maritime lawyers, who are often instructed to advise on disputes that arise thereunder, may well feel that the judgment has given the opportunity to parties domiciled in European Economic Area states to commence legal proceedings, normally in their own country, in breach of a previously-agreed arbitration clause, without facing any sanction for so doing.   Whether this happens remains to be seen. 

Footnotes
1 “The slow death of English maritime law?”
2 ECJ Case C-185/07, decision dated 10th February 2009.