News

Wed, 20 Apr 2011

Anti Suit Injunctions Revisited

The English courts used to routinely police arbitration agreements by the use of anti suit injunctions – if the parties had agreed to use English arbitration and law to resolve disputes, the English court would often issue an order restraining one of the parties to that agreement from litigating elsewhere in the world.

That practice was dealt a blow by the decision of the European Court of Justice in the “Front Comor”, where the parties are domiciled within the European Union.

The “Front Comor” collided with the charterer’s premises in Syracuse, Italy.

The charterer’s insurers commenced proceedings against the owners before a court in Syracuse. The vessel owners didn’t dispute that the Italian court had jurisdiction over the tortious claim under the relevant European Regulation, but they commenced proceedings in England for a declaration that the dispute arose out of the charterparty and that these insurers were bound by the English law and arbitration clause contained in it. They also claimed an injunction to restrain the insurers from taking any further steps to resolve the dispute other than by way of London arbitration and required them to discontinue the Syracuse proceedings.

The English court, at first instance, granted the declaration and the anti suit injunction was issued. It was appealed to the House of Lords which then referred the question to the European Court of Justice.

The question was whether it was consistent with the relevant EC Regulation for a court of a member state to make an order restraining a person from commencing and continuing proceedings in another member state on the ground that the proceedings were a breach of an arbitration agreement.

The relevant EC Regulation clearly states that it does not apply to arbitration.

In roads had been made into the issue of anti suit injunctions by the earlier case of Turner v Grovit. That matter involved an agreement as to jurisdiction. The European Court of Justice decided that the use of anti suit injunctions to police jurisdiction agreements constituted an interference with the jurisdiction of a foreign court and was, therefore, incompatible with the overall scheme of jurisdiction contained in the EC Regulation.

Should the same approach be extended to agreements to arbitrate?

The House of Lords was clear. They felt there was nothing incompatible. It did so largely on the grounds of party autonomy. The guiding principle of the EC Regulation giving precedence to domicile was unsuited to arbitration – this is because the place and governing law of arbitrations are generally chosen by parties on grounds of neutrality and discrete supervision by the courts.

The purpose behind anti suit injunctions was to protect the contractual rights to have the dispute determined by an arbitrator. Therefore, the arbitration agreement fell outside the system of allocation created by the Regulation. The House of Lords noted that there was no dispute that the Syracuse court had jurisdiction to try the tortious claim. But the arbitration clause was an agreement not to invoke that jurisdiction.

To apply the jurisdiction regime of the Regulation to arbitration was to ignore the practical realities of commerce. Business people chose arbitration to be outside the procedures of any one national court. This was because they preferred privacy, informality and speedy resolution.

The Advocate General of the European Court of Justice disagreed and his reasons were adopted by the European Court.

In brief, the Advocate General’s reasons were as follows:

There is a difference between the “Anglo Saxon school” and the “Continental European school” as to who should decide the validity of an arbitration agreement. The former says the tribunal itself. The latter says it is the court who has jurisdiction by virtue of the scope of the Regulation.

Look at the real subject matter of the dispute to see where jurisdiction lies. In this case, the subject matter of the dispute was the damage to the jetty in Syracuse, a claim in tort, and, therefore, under the EC Regulation the Syracuse court has prima facie jurisdiction.

That court then decides whether it has jurisdiction derived from the general principal that every court is entitled to examine its own jurisdiction. The claim that there is an agreement between the parties ie the arbitration agreement, cannot remove that entitlement.

Any such court would have to take heed of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and, in principle, could stay a matter and refer the dispute to arbitration subject to certain conditions.

The EC Regulation is based on trust. Contracting states have to trust the legal systems and judicial institutions of other states.

The EC Regulation contained provisions to ensure there was co-ordination between member states to avoid an irreconcilable decision. If arbitration fell outside the scope of the Regulation, there would be no mechanism to co-ordinate.

Lastly, unilateral anti suit injunctions were not apt to rectify the situation. The question was asked – what if other member states followed the English example and issued anti suit injunctions. Reciprocal injunctions could follow.

Since the decision in the “Front Comor”, attempts have been made by parties to apply the approach of the European Court to the issue of anti suit injunctions not involving EU domiciled respondents.

These attempts have been rejected by the English courts and, now, it would seem that there may be a move back to the position as it was before the decision of the European Court in the “Front Comor”.

In December 2010, the European Commission issued a proposal to amend the relevant EC Regulation.

It found that both the efficiency of choice of court agreements and that the interface between arbitration and litigation needed to be improved.

It proposed to do so, with regard to choice of law, by giving primacy to the court designated by the parties in a choice of court agreement. Currently, the Regulation obliges that court to stay proceedings if another court is first seised.

The effect of the amendment would be to give the designated court primacy to decide its own jurisdiction, regardless of whether it was the court first or second seised.

With regard to arbitration, the Commission noted that arbitration is excluded from the scope of the Regulation but that by challenging an arbitration agreement before a court, one of the parties may effectively undermine that arbitration agreement and “create a situation of inefficient parallel court proceedings which may lead to irreconcilable resolution of the dispute”.

To cure this, the amended Regulation would oblige a court seised of the dispute to stay those proceedings if its jurisdiction is contested on the basis of an arbitration agreement and an arbitration tribunal has been seised of the case or if court proceedings relating to the arbitration agreement have been commenced in the member state of the seat of the arbitration.

The general effect is to give primacy to the tribunal to rule on its own jurisdiction, relegating the court to await the outcome of that ruling.

It follows, with regard to arbitration, that it would be as well if an arbitration were commenced, in accordance with the relevant contract, so that the tribunal is seised of the proceedings, before proceedings are commenced before a court in any jurisdiction.

It remains to be seen as and when the revised Regulation comes into force.