EU: Impact of West Tankers felt with English Court of Appeal judgment in the "Wadi Sudr" (Arbflash, January 2010)

In National Navigation Co -v- Endesa Generacion SA [2009] EWCA Civ 1397 (the Wadi Sudr), the Court of Appeal considered the impact of the European Court of Justice (ECJ) ruling in West Tankers(1) in circumstances where, despite the existence of a London arbitration clause and choice of English law as the applicable law, the defendant asserted that the Spanish courts had jurisdiction and that Spanish law applied to the issues in dispute.

Facts

The dispute concerned a bill of lading, the defendant consignee having commenced proceedings in the Spanish courts arguing that the Spanish courts had jurisdiction and Spanish law applied. The claimant shipowner then commenced London arbitration proceedings and the issue of the jurisdiction of the tribunal was referred to the Commercial Court in London with the tribunal's consent. It was these "arbitration proceedings" that were before the Court of Appeal. Prior to the Commercial Court hearing, the Spanish court handed down judgment, ruling that the arbitration clause had not been incorporated into the bill of lading and that Spanish law applied to the dispute.

First instance decision

At first instance, Gloster J dismissed the claimant's application for an anti-suit injunction in light of the ECJ ruling in West Tankers. However, she granted the claimant's application for a declaration that certain disputes between the parties were referable to London arbitration, notwithstanding the finding of the Spanish court. She held that although the Spanish judgment fell within the Brussels Regulation(2), it was not binding in the arbitration proceedings before her as those proceedings fell outside the Regulation. Further, it would be manifestly contrary to UK public policy to recognise the Spanish court's judgment. This decision was regarded by many as significant in that it limited the scope of the West Tankers decision.

Court of Appeal decision

The Court of Appeal disagreed with Gloster J on both the recognition and public policy points. It held that:

• Her conclusion that a Regulation judgment would not be binding because the arbitration proceedings fell outside the Regulation was contrary to West Tankers. Further, Article 33(1) of the Regulation imposed on Member States a legal duty to recognise the judgments of other Member States, subject only to the terms of the Regulation itself.
• The Spanish judgment, as a Regulation judgment, was therefore binding on the English court even though these proceedings were "arbitration proceedings" and fell outside the Brussels Regulation.
• Lord Justice Moore-Bick also considered that although an arbitral tribunal would not itself be bound by the Regulation, it would arguably not be entitled to disregard judgments of Member States since res judicata principles would apply.
• It followed that if the consignee was entitled to challenge the incorporation of the arbitration clause into the bill of lading in the Spanish court and, if the English court was bound to recognise the decision of the Spanish court, there was no room for any argument that in some way public policy was being infringed. The fact that the English court would have found that the arbitration clause was incorporated was not sufficient to render the Spanish judgment contrary to public policy in England. Public policy considerations would only apply if conscious wrongdoing was present, e.g. pursuing proceedings in defiance of an injunction.

Accordingly, the English court (and arguably the arbitration tribunal) was bound by the decision that no arbitration clause was incorporated into the bill of lading.

Comment

This case highlights the problems with the relationship between the Brussels Regulation and arbitration. It also illustrates the problems of the competing demands of the UK's obligations under the New York Convention to recognise arbitration agreements, and its obligations under EU law to respect and uphold judgments of the courts of other EU Member States.

Many consider the status quo unacceptable and the arbitration exception in the Brussels Regulation is one of the issues being debated as part of the current review of that Regulation. Latest indications are that a re-draft will not be available before 2011 so arbitration practitioners will have to live with it for now. In practical terms, several commentators considered that West Tankers would have a negative impact on the popularity of London as a choice for arbitration and this decision has reinforced that view. However, in reality it is unlikely that this decision will significantly affect London's popularity because there remain a number of significant advantages to London arbitration.

However, this decision does further weaken the protection that the English courts are able to give to arbitration clauses in circumstances where other Member States consider that they have jurisdiction. If there are concerns that a party to a dispute may try to use the Brussels Regulation to sidestep any arbitration clause, it may be prudent to take pre-emptive steps and request a declaration from the relevant court (in this case the English Commercial Court) that there is a binding arbitration agreement. This would then prevent any other Member State court from claiming jurisdiction to decide the issue.

Recent reports indicate that permission to appeal the decision is being sought and we will report on any further developments.

Notes:
(1) Allianz SpA -v- West Tankers Inc (Case C-185/07).
(2) Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

Please click on the links below for the other articles in the January 2010 Arbflash:  

• Energy Charter Treaty update: Arbitral Tribunal finds Russia bound by ECT and Swiss RUE notifies Ukranian Government of claim
• Singapore High Court considers use of other institutional rules by SIAC
• English Commercial Court considers question of venue of arbitration
• Indian Supreme Court opens door to setting aside arbitration clauses
• Malaysian Federal Court considers enforcement of New York Convention awards
• Scottish Parliament passes Arbitration Bill
• Update on the review of Australian international arbitration legislation
• Issues for experts acting under the ICC Rules for Expertise or the ICC Rules of Arbitration
• Centre for Effective Dispute Resolution (CEDR) publishes rules on settlement in international arbitration
• Disputes service to act as online consultant on arbitral appointments
• New arbitration and ADR consultant appointed for ICC
• Moser appointed by World Bank as arbitration adviser in Cambodia
   

Contact

Ronnie King
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E: ronnie.king@ashurst.com

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