This article was written by Juliette Huard-Bourgois and Swati Tripathi.
The conduct of international arbitration proceedings, from enforcement of arbitration agreements to enforcement of arbitral awards, sometimes involves actions before the courts. In the European Union (“EU”), international arbitration has to co-exist, not only with national procedural law in each jurisdiction, but also with EU procedural law, which harmonises jurisdiction and enforcement rules amongst the EU states.
EU procedural harmonisation is orchestrated through the application by each EU State of Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (hereafter the “Brussels Regulation”). The objective of the Brussels Regulation is the creation of an EU area of justice, where parallel court proceedings are prevented and judicial decisions can circulate easily.
The importance of the Brussels Regulation is well known to EU litigators. Its rules determine both the jurisdiction of EU courts in civil and commercial matters and the conditions for the recognition and the enforcement of their judgments in other EU States. These rules originate from the 1968 Brussels Convention and have been interpreted by the European Court of Justice (“CJEU”), which case law is binding on the EU States.
Following a wide consultation led by the European Commission, the EU Parliament and the Council have adopted a new version of the Brussels Regulation: Regulation (EU) No 1215/2012 of the Parliament and Council of 12 December 2012 (hereafter the “Recast Brussels Regulation”) which is meant to further improve and simplify the conduct of cross-border litigation within the EU.
The Recast Brussels Regulation will apply to court proceedings, falling within its material scope, started after 10 January 2015 in all EU member States, including Denmark and the UK.
In this article, we examine the scope of the arbitration exclusion in the Brussels Regulation and how it has been clarified in the Recast Brussels Regulation. The article considers in particular the issue of enforceability of anti-suit injunctions granted in favour of arbitral proceedings in light of the recent opinion of the Advocate General in the case of Gazprom v Lithuania pending before the Court of Justice of the European Union (the “CJEU”).
The arbitration exclusion and its problems
The 1968 Brussels Convention, and the Brussels Regulation after it, have always expressly excluded ‘arbitration’ from their scope of application. Arbitration was originally excluded because of the other international instruments in force dealing with the subject, such as the New York Convention, to which all the EU States are parties. However, this apparently simple ‘arbitration exclusion’ gave rise to complex legal issues, namely:
- The uncertainty as to which arbitration-related court actions fall under the EU jurisdiction rules or national law;
- The possibility of starting court proceedings to neutralise the arbitration process (known as Torpedo actions); and
- The impossibility of obtaining anti-suit injunctions in favour of arbitration.
The exact scope of the arbitration exclusion, and in particular its operation in case of court proceedings parallel to arbitration, had never been clearly defined by the EU legislator, creating legal uncertainty and room for dilatory tactics. In various cases, litigants have attempted to circumvent their arbitration agreements, arguing that courts had jurisdiction over their dispute under the Brussels Regulation. National judges, sometimes unfamiliar with arbitration, accepted jurisdiction under the Brussels Regulation, despite the presence of an arbitration agreement in the parties’ contract. It was felt that these situations diminished the effectiveness of arbitration agreements designating EU seats, and that these problems could be avoided if the EU could reinforce the meaning of this arbitration exclusion.
The Recast Brussels Regulation
In relation to arbitration, the Recast Brussels Regulation meets expectations. It allows courts and parties to identify which body of procedural law - national law or the Brussels rules – should apply to the courts’ jurisdiction over an arbitration related application put before them.
This is achieved by the addition of Recital 12 to the Preamble of the Regulation. This Recital is expected to have far reaching and positive consequences for the practice of international arbitration and related court claims in the EU.
Clarification of the scope of the arbitration exclusion
The simple term ‘arbitration’ in the arbitration exclusion of the Brussels Regulation designates a variety of arbitration-related court proceedings that differ in timeframe and nature, such as:
- Actions relating to the validity of the arbitration agreement or its scope;
- Actions ancillary to arbitration including actions for the appointment of the arbitral tribunal or the challenge of an arbitrator;
- Actions relating to the enforcement – or annulment - of an arbitral award; and
- Actions relating to the enforcement of a court judgment recognising the validity of an arbitration agreement.
Were all these arbitration-related court actions meant to be excluded from the Brussels jurisdiction and enforcement regime? Or only some of them? And, if so, which ones? This lack of clarity has generated unpredictability that the CJEU has tried to reduce over the years, without great success.
Recital 12 of the Recast Brussels Regulation confirms that all these arbitration-related actions are meant to be excluded from the Brussels jurisdiction and enforcement regime. This is undoubtedly an improvement for the effective conduct of arbitrations in the EU.
Supremacy of the New York Convention over the Brussels Regulation
Where parallel arbitration and court proceedings are initiated, there is an obvious risk of inconsistency between an arbitral award and a court judgment. In such a situation, a court in the EU could face a conflict between (i) its obligations under the New York Convention to enforce an award, and (ii) its obligation under the Brussels Regulation to enforce a judgment from a sister EU court. Recital 12, and a new Article 73.2 in the Recast Regulation, will help to end this conflict.
New Article 73.2 states: “This Regulation shall not affect the application of the 1958 New York Convention”. It is complemented by Recital 12 which explains that the obligations of the EU States under the Recast Brussels Regulation should not prejudice their competence to decide on the enforcement of arbitral awards under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Recital 12 clearly affirms the supremacy of the New York Convention when it provides that the New York Convention “takes precedence over this Regulation".
The end of the Torpedo actions
A Torpedo action is a litigation tactic where a party commences proceedings in a court of its own choosing, notwithstanding the parties’ arbitration agreement, leading to costly jurisdiction challenges and inordinate delay to legal proceedings. Under the Brussels Regulation, as interpreted by the CJEU in the famous case Allianz v West Tankers Case C-185/07, torpedo actions aimed at contravening an arbitration agreement, were facilitated by the priority given under the Brussels Regulation to the jurisdiction of the EU State court first seized of the dispute.
In this case decided in 2009, the underlying dispute concerned the insurers of charterers of a vessel (Allianz) and the vessel’s owners (West Tankers) over responsibility for a collision of the vessel against a jetty owned by charterers in Italy during the voyage charter. After the charterers started arbitration in England pursuant to the arbitration agreement on the charter party, Allianz started substantive court proceedings in Italy. In response, West Tankers seized the English courts and obtained an anti-suit injunction preventing the insurers from prosecuting their claim in Italy. That anti-suit injunction was ultimately set aside following a decision of the CJEU. In this decision, the CJEU ruled that, in the case of parallel arbitration and court proceedings in the EU, any EU State court, including the courts of the seat of arbitration, had to stay their proceedings pending a decision of the EU State court first seized, even if their proceedings related to the validity or scope of an arbitration agreement. This case effectively allowed parties to submit to court a dispute that was subject to an arbitration agreement, in the expectation that this court would at the least take a long time to decide on its jurisdiction.
With the Recast Brussels Regulation, EU State courts will no longer be bound by the Brussels rules in such a situation. Courts will be free to apply their own national law, including the New York Convention, to any dispute concerning an arbitration agreement and to order parties to start arbitration despite court proceedings pending in another EU State. Under the Recast Brussels Regulation, the English courts will be entitled to give effect to the English arbitration agreement without being obliged to wait until the first-seized EU sister court decides on its jurisdiction - the so-called Italian torpedo will itself be torpedoed.
The problem with English anti-suit injunctions
In West Tankers, the CJEU confirmed that anti-suit injunctions – even in support of an arbitration agreement – are prohibited within the EU, if they concern court proceedings in another EU State court. Anti-suit injunctions are controversial from the point of view of EU law as they contravene the principle of mutual trust between EU State courts, which is the underlying principle of the Brussels regime. The Recast Brussels Regulation did not touch on that issue and a majority of commentators therefore consider that anti-suit injunctions, even those relating to the enforcement of an arbitration agreement, remain prohibited in EU law.
A recent judgment of the CJEU in Gazprom v Lithuania Case C-536/13 has clarified that enforcement of anti-suit injunctions issued by arbitral tribunals falls outside the scope of the Brussels Regulation. This case arose due to a referral to the CJEU by the Supreme Court of Lithuania in the context of an award akin to an anti-suit injunction granted by an ICC tribunal seated in Stockholm in favour of Gazprom.
The dispute between Gazprom and the Ministry of Energy of Lithuania concerned a shareholders agreement (SHA) relating to the running of the Lithuania’s main gas provider, Lietuvos Dujos. The Ministry commenced legal proceedings against Gazprom in the Lithuanian courts. Gazprom then brought arbitration proceedings in Stockholm pursuant to the terms of the arbitration agreement in the SHA. In 2012, the tribunal rendered an award declaring that the Ministry had partially breached the arbitration agreement by bringing court proceedings in Lithuania. The tribunal ordered the Ministry to limit its requests in the Lithuanian proceedings to claims that could not be made before the arbitral tribunal. Gazprom sought enforcement of this award in the Lithuanian Supreme Court. The Supreme Court referred the following main questions to the CJEU:
First, can the court refuse to recognise an award that amounts to an anti-suit injunction on the ground that it is incompatible with the Brussels Regulation in restricting the right of the Lithuanian court to determine its jurisdiction?
Second, would enforcement of the award violate the concept of “public policy” in Article V(2)(b) of the New York Convention by limiting the court’s right to decide on its own jurisdiction under the Brussels Regulation?
On 4 December 2014, Advocate General (AG) Wathelet delivered his opinion in this case. On the first question, the AG concluded that the Brussels Regulation did not require the EU State court to refuse to recognise the award. That question fell to be determined solely by reference to the New York Convention. The AG came to this conclusion in light of Recital 12 of the Recast Brussels Regulation explained above.
The AG’s opinion was controversial because the case against Gazprom was commenced by the Ministry in 2011 and therefore fell under the old Brussels Regulation. However, in the AG’s view, Recital 12 of the Recast Brussels Regulation (which is only applicable to proceedings commenced after 10 January 2015) was applicable because its function is to explain retrospectively how the arbitration exclusion should always have been interpreted even under the old Brussels Regulation.
On the second question, Article V.2(b) of the New York Convention permits a court to refuse recognition and enforcement of an arbitral award where it would be contrary to public policy. Having analysed the concept of public policy, the AG concluded that the inclusion of an anti-suit injunction in an award which limits a court's right to decide on its own jurisdiction is not sufficient grounds for the relevant court to refuse to recognise and enforce that arbitral award.
In its much awaited judgment issued on 12 May 2015, the CJEU followed the AG’s opinion and held that the Brussels Regulation does not preclude an EU State court from recognising and enforcing an arbitral award which prohibits a party from bringing certain claims before an EU State court. Although the CJEU and the AG reached the same conclusion the basis of the CJEU’s decision was very narrow. It stated that the Brussels Regulation is intended to regulate jurisdiction as between EU State courts, not arbitral tribunals. The judgment did not consider the wider arguments in relation to the retrospective application of Recital 12 of the Recast Brussels Regulation.
This judgment sets down an important marker for the interpretation of the arbitration exception in the Brussels Regulation going forward, with the effect that an anti-suit injunction issued by an arbitral tribunal is recognisable and enforceable by EU State courts under the New York Convention without reference to the Brussels Regulation.
The current position is that anti-suit relief in restraint of court proceedings in violation of an arbitration agreement is available from:
- The English courts, only if they relate to court proceedings outside the EU; and
- Any arbitral tribunals, even if they relate to court proceedings inside the EU.
Alternative ways to protect against Torpedo actions are available from the English courts to incentivise an opponent to abide by the terms of an arbitration agreement. These alternatives stem out of the further episodes of the West Tankers dispute and include:
- Bringing a damages claim in the English courts for damages for breach of the arbitration agreement (in West Tankers, the English court has confirmed that it is still possible to bring a claim for damages for breach of contract/arbitration agreement);and
- Seeking an arbitral award from the competent arbitral tribunal for a declaration of non-liability and asking the English court to enforce it, despite later court proceedings started in another EU State (in the last episode of West Tankers, the Court of Appeal has confirmed that declaratory awards can be enforced in the same manner as judgments).
The Recast Brussels Regulation provides and the recent Gazprom decision confirm the long awaited clarification that arbitration matters (including legal proceedings incidental and ancillary to arbitration) fall squarely outside the EU Brussels jurisdiction regime and that the New York Convention should prevail over EU law.
West Tankers Inc v Allianz SPA & Anr  EWHC 854 (Comm)