ECJ signals the end for anti-suit injunctions

Yesterday the European Court of Justice (ECJ) handed down its judgment in the leading House of Lords case of West Tankers Inc. v RAS Riunione Adriatica di Sicurta SpA & Others.

In a landmark decision, the ECJ has ruled that it is incompatible with EU law for a court of a Member State to make an order restraining a party from commencing or continuing proceedings in the court of another Member State in breach of an arbitration agreement.

The practical effect of this ruling is that it is no longer possible for a party to an arbitration agreement to obtain an anti-suit injunction from a court of a member state preventing a counter-party from bringing proceedings in another member state in breach of that agreement. Parties may now find themselves forced to conduct time consuming litigation before a foreign court in circumstances where they have nevertheless negotiated and agreed that any such dispute shall be referred to arbitration at a seat of their choosing.

Background

In West Tankers, the House of Lords was asked to consider an appeal against an anti-suit injunction previously granted in favour of West Tankers to prevent the continuance of proceedings instigated by insurers Allianz and others against it before a court in Syracuse, Sicily. The underlying dispute concerned the collision of a ship with a jetty in Italian waters, and although the charterparty was subject to English law and contained a London arbitration clause, the insurers sought to pursue the ship owner, West Tankers, before a court in Syracuse – the place were the damage occurred and thus the court of jurisdiction pursuant to Article 5 §3 of EC Regulation 44/2001 (Regulation) (relating to the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters between EU member states).

In a judgment delivered on 27 February 2007, their Lordships referred the following question to the ECJ: “Is it consistent with [the Regulation] 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?” In doing so, the House of Lords also made clear its own view that, in the context of arbitration, the Regulation has no application and that issues of jurisdiction should be deferred to arbitrators and the supervising court, rather than waiting for the court ‘first seised’ (i.e. a different national court) to dismiss the action. Given that the Regulation simply states that it “shall not apply to…arbitration”, their Lordships sought to give effect to the plain and natural meaning of those words.

On 4 September 2008, Advocate General Kokott issued her non-binding opinion on the matter, disagreeing with the views expressed by the House of Lords and finding that the Regulation did preclude the granting of an anti-suit injunction in support of arbitration proceedings (click here to view our Law-Now on the subject).

Judgment of the ECJ

The ECJ agreed with the Advocate General. Although, on the face of it, the Regulation excludes arbitration from its scope of application, an anti-suit injunction in support of arbitration proceedings was nevertheless incompatible with the Regulation. In summary, the ECJ expressed the position as follows:

• In order to determine whether a dispute falls within the scope of the Regulation, reference must be made solely to the subject matter of the proceedings and, in particular, the rights sought to be protected. Since the subject matter in West Tankers was a claim in tort for damages, this fell within the scope of the Regulation.
• Issues concerning the applicability of an arbitration agreement were also within the scope of the Regulation. Challenges to the validity of an arbitration agreement were, in particular, for the relevant court to determine. This finding was consistent with the position under the New York Convention (Article II(3)) that is, it is for the court of a contracting state, when seised of an action, where the parties have entered into an arbitration agreement to refer the matter to arbitration when it finds an arbitration agreement null and void, inoperational or incapable of being performed.
• It followed that the objection of lack of jurisdiction raised by West Tankers on the basis of the existence of an arbitration agreement, including the question of validity of that agreement, was therefore within the scope of the Regulation. It was therefore exclusively for the Syracuse court to rule on that objection and on its own jurisdiction.
• The use of an anti-suit injunction to prevent a court of a Member State from ruling on the applicability of the Regulation to the dispute brought before it, amounted to a stripping of that court’s power to rule on its own jurisdiction.
• In obstructing the court of another Member State, an anti-suit injunction runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions. 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.
• Finally, the granting of anti-suit injunctions may deprive a party of a form of judicial protection to which it would otherwise be entitled if, for example, the arbitration agreement in question was void, inoperable or incapable of being performed.

Taking all of the above into account, the ECJ held that an anti-suit injunction, such as the one obtained in West Tankers, is not compatible with the Regulation. In doing so, the ECJ firmly answered “no” to the question posed by the House of Lords.

Comment

Although disappointing to many commentators, the decision of the ECJ was widely expected, given the opinion of the Advocate General on the matter.

The ECJ, in contrast to the English court, has demonstrated previously a marked distaste for anti-suit injunctions in the context of litigation rather than arbitral proceedings. Yesterday’s decision confirms that the ECJ takes a dim view of any attempt to fetter the ability of a Member State’s court to determine whether it has jurisdiction to hear a particular case. This is entirely consistent with preserving the general principle of mutual trust that underpins the Regulation, and effectively allows each court to make its own decision on such matters.

In anticipation of this decision, there has been much debate as to its possible consequences. Although is too early to say what the immediate impact will be, there is the opportunity for interference by national courts in the arbitration process. This could lead to frustrating delays and disruption to arbitration proceeding where no anti-suit injunction remedy is available. From a tactical perspective, a party may find itself dragged into prolonged and uncertain jurisdictional litigation in another Member State with a party that has no interest in participating in arbitration. In some cases such litigation may last for years before being resolved. In those circumstances, the loss of a sophisticated tool to prevent forum shopping will certainly be missed.

Case references:

Allianz SpA (formerly RAS Riunione Adriatica di Sicurta SpA) and Others v West Tankers Inc.: C-185/07
West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA & another, The Front Comor [2007] UKHL 4
Turner v Grovit: C-159/02 [2005] 1 AC 101