Acting up

Can London defend its position to act solely on an arbitration, or can a party break the agreement and switch to an EU member state if it is more favourable to its cause? Roger Hopkins and Ben Horn report

Parties opt for arbitration for a variety of reasons. First and foremost they make a decision that they do not wish their disputes to be resolved by the national courts of any particular country. Other oft-cited reasons for doing this include privacy, informality, the ability to appoint the arbitrator and in many jurisdictions and with some forms of arbitration the absence of any appeal procedures before the courts.

So what does a party do when faced with the commencement of proceedings by one party in breach of an agreement to arbitrate? One answer is, of course, that it may apply for an injunction from the court of the seat of the arbitration restraining the other party from continuing with the foreign proceedings.

Since at least 1911 the English courts have been willing to enjoin foreign proceedings commenced in breach of an agreement to arbitrate in London. But this may all be about to change, at least in the context of proceedings being commenced before the courts of an EU member in breach of a London arbitration clause.

The power to restrain
The jurisdiction to restrain foreign court proceedings is an important and valuable weapon in the hands of the court exercising supervisory jurisdiction over the arbitration. Its exercise means that a party to an arbitration agreement does not have to keep an eye upon foreign court proceedings, trying to balance the need to do enough to defend the case so as to avoid a default judgment, but at the same time not to submit to the jurisdiction. In the Atlantic Emperor case (1992), this was precisely what happened.

This was the first Brussels Convention case from England to reach the European Court of Justice. The parties’ rights were not ultimately decided by arbitration in London (despite the choice of London arbitration in the contract), but were instead decided by the Italian courts. This was because the claimant in the London arbitration, by the time it applied for an injunction restraining the Italian proceedings in which it was the defendant, had already submitted, albeit unintentionally, to the jurisdiction of the Italian court.

One view is that this outcome could have been avoided had the claimant applied for an injunction at an earlier stage of the proceedings and this may have been one reason why, in the recent Front Comor case, West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA (2007), the claimant moved quickly to seek an injunction requiring the defendant in that case not to pursue its claims other than in arbitration in London and to discontinue the foreign legal proceedings.

The Front Comor was a vessel owned by West Tankers and chartered to ERG. It collided with a jetty that was owned by ERG. ERG commenced arbitration in London to recover those parts of its losses that had not been settled by its insurer, RAS. RAS commenced proceedings in the Italian court to recover the monies it had paid to ERG. West Tankers applied to the Commercial Court in London to obtain an injunction restraining the continuation of the Italian proceedings. At first instance the injunction was granted, it being found that there was a valid agreement to arbitrate and that such agreement covered the subrogated rights of RAS. A permanent anti-suit injunction was granted by Mr Justice Colman. So far so good.

A question of jurisdiction
The case was appealed to the House of Lords. RAS maintained broadly that the Italian proceedings were civil and commercial matters over which the Italian court had jurisdiction under the European rules. Thus no injunction should be issued by the English courts, as any restraint undermined the principle that the European jurisdictional rules are a complete code uniformly applicable to the courts of all member states and the courts of each member state must trust the courts of others to apply those rules correctly and should not interfere with the exercise of that jurisdiction.

The owner maintained that proceedings to enjoin the continuation of the foreign court proceedings were entirely to protect the contractual right to have the dispute determined by arbitration and thus could not fall foul of the European jurisdictional rules, as court proceedings relating to arbitration were excluded. The European Court of Justice had previously decided in the decision of Van Uden Maritime v Deco Line (1998) that the subject matter was arbitration “if the proceedings serve to protect the right to have the dispute determined by arbitration”.

The Lords referred the issue as to whether an injunction should lie to restrain proceedings in another member state commenced in breach of an agreement to arbitrate to the European Court of Justice for a decision. However, Lord Hoffmann gave a very clear indication as to how the court saw the matter. From this nothing has changed in the mind of the judiciary in terms of its attitude to anti-suit injunctions. In its opinion, they should continue to be available as they have been since at least 1911.

Although recognising the existence of contrary views that were described as being “divorced from reality”, the clear view was that injunctions restraining court proceedings commenced in member states are intended entirely to protect the contractual right to have the dispute determined by arbitration and thus fall outside the European regulations.

Indeed, there is no clearer example of proceedings being commenced in the London courts designed to protect the contractual right to have a dispute referred to arbitration than the injunction designed to restrain proceedings commenced in breach of an arbitration agreement.

Sticking to arbitration agreements
London is, of course, one of the world’s main centres for dispute resolution. There are other important European centres for arbitration. It is an important feature of any dispute resolution landscape that injunctions which effectively enforce the contractual bargain of the parties to refer their disputes to arbitration are, and continue to be, available. There is no reason to distinguish proceedings commenced in the courts of the European member states and those commenced in other courts.

The ability of European seats of arbitration to compete effectively with the rest of the world depends on the existence of the jurisdiction to make orders restraining parties from acting in breach of the arbitration agreement, and, as Lord Steyn said in West Tankers there is “no doctrinal necessity or practical advantage which requires the European Community to handicap itself by denying its courts the right to exercise the jurisdiction” to issue anti-suit injunctions.

If they were to, arbitration in London and elsewhere in Europe could not be protected against competing court proceedings commenced in other member states. The courts of other competing centres for arbitration such as New York, Singapore and Bermuda will be quite ready to issue anti-suit injunctions to protect arbitration in their territories, so why should not the courts of England and other European nations?

It is much to be hoped that the European Court of Justice will agree with the analysis of the House of Lords, but we will have to wait for the decision of the European Court of Justice to find this out. If the European Court of Justice disagrees, it is likely that the English courts will continue to issue anti-suit injunctions to restrain proceedings commenced in breach of arbitration clauses in non-member states, but similar proceedings commenced before the courts in Europe will be immune from restraint.

Roger Hopkins is a partner and Ben Horn is special counsel at Faegre & Benson