DMC Category Rating: Confirmed

Background
The Front Comor, a ship owned by West Tankers Inc ("Tankers") and chartered to Erg Petroli Spa ("Erg"), collided with and damaged the Erg jetty at Syracuse. The charter contained English law and London arbitration provisions. Erg claimed upon its insurers, Ras and Generali, up to the limit of its cover and commenced London arbitration against Tankers for the excess. Tankers counterclaimed that it was not liable for the damage. The insurers subsequently commenced subrogated proceedings in Italy against Tankers to recover what they had paid Erg under the insurance. Subject to any application for a stay pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Italian Court had jurisdiction under article 5(3) of the Regulation.

Tankers consequently began English Court proceedings against the insurers, seeking declarations that the Italian case arose out of the charter and that the insurers claiming via subrogation were therefore bound by the London arbitration clause in the charter. Tankers also sought an injunction to stop the insurers taking any further steps other than in arbitration and to get them to discontinue the Italian proceedings.

Relevant law
Article 1(2)(d) of the Regulation provides that it does not apply to arbitration. Section 37(1) of the Supreme Court Act 1981 provides that the English High Court has jurisdiction to grant an injunction in all cases where it is just and convenient to do so. The English Courts have regularly exercised this power before to stop parties to an arbitration agreement from starting court proceedings in other countries.

Arbitration, however, is wholly excluded from the scope of the Regulation. The Regulation gives priority to the defendant’s domicile and that approach is unsuited to arbitration in which the parties will normally have chosen the seat and governing law on grounds of neutrality, availability of legal services and the unobtrusive effectiveness of the supervising jurisdiction.

It is settled law that the arbitration exclusion from the Regulation also applies to court proceedings in which the subject-matter is arbitration. Where, as in this case, proceedings are brought to protect the contractual right to have a dispute dealt with by arbitration, they fall outside the scope of the Regulation and cannot be challenged for being inconsistent with its provisions. To extend the application of the Regulation to orders made in proceedings in which it does not apply, such as arbitration or arbitration-related proceedings, goes beyond the reasoning in Gasser v MISAT and Turner v Grovit.

The House of Lords also observed that commercial people who choose arbitration do so to be outside the jurisdiction of any court rather than to choose one court over another, often for reasons of privacy, informality, absence of delay through appeal or application by the arbitrators of a more commercially-minded approach to legal issues. Arbitration, however, needs the support of the national courts and this has often been through the court's ability to restrain foreign court proceedings and thereby reduce the risk of conflict between an arbitration award and the judgment of a national court. Finally, the Court pointed out that the European Community competes with other jurisdictions to offer a seat of arbitration capable of making orders to restrain parties from acting in breach of arbitration agreements and so should not risk losing its competitive edge by stopping its courts from making orders of this kind.

In the light of these observations, the House of Lords referred to the European Court of Justice the question whether it was inconsistent with the Regulation to restrain a person from commencing proceedings in one EC Member State on the ground that such proceedings are in breach of an arbitration agreement.

^{1    Case C-116/02) [2003] ECR I-14693
2    Case C-159/02) [2004] ECR I - 3565}

Comment
Although they referred the question to the European Court of Justice, the House of Lords veered strongly towards the continued availability of anti-suit injunctions as a protection for those who have entered into arbitration agreements. In endorsing the main judgment of Lord Hoffman, Lord Mance stressed the importance and independence of the arbitration process and the role of anti-suit injunctions to give efficient and speedy effect to clearly applicable arbitration agreements.

To a certain extent, the Regulation and the related decisions in Gasser v MISAT and Turner v Grovit have eroded the application of anti-suit injunctions in EC Member States, but, so far at least, that erosion has not extended to their efficacy in the context of arbitration. In that way, commercial parties can still enter into London arbitration agreements, particularly in conjunction with English governing law provisions, safe in the knowledge that an attempt to circumvent such agreements by reference to courts of other jurisdiction will not be welcomed by the English Court.

If the parties wish to ensure that any dispute likely to arise in the EU is heard in London, a London arbitration clause is likely to be more effective for that purpose than an exclusive jurisdiction clause in favour of the English High Court.

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