Out-Law Guide | 18 Feb 2009 | 12:17 pm | 4 min. read
Allianz SpA and Others v West Tankers Inc.
In August 2000, a vessel owned by West Tankers and chartered by Erg Petroli caused damage when it collided with a jetty owned by Erg in Syracuse, Italy. The charterparty was governed by English law and contained a clause providing for arbitration in London.
Erg claimed against its own insurers up to the limit of its cover and began arbitration proceedings in London against West Tankers for the excess. West Tankers denied liability.
Erg's insurers then issued subrogation proceedings in Italy against West Tankers to recover the sums they had paid to Erg. In response, West Tankers started proceedings in the English High Court for an anti-suit injunction preventing insurers from pursuing the Italian proceedings in breach of the London arbitration clause.
In March 2005, the High Court granted the injunction. Erg's insurers appealed to the House of Lords and, in February 2007, the Law Lords referred the matter to the European Court of Justice.
Regulation 44/2001 governs which court has jurisdiction to hear a dispute.
The general rule is that a person who is domiciled in an EU member state is sued in the courts of that state. In certain specified situations, however, courts of other member states may also have jurisdiction. In cases involving a tort such as negligence, for example, the action may be brought where the harmful act occurred.
Where different member states have concurrent jurisdiction over the same dispute, the court "first seised" of the action will have exclusive jurisdiction and will decide any challenges to that jurisdiction. Until it is established which is the court first seised, all courts must stay their proceedings and once the question is decided, all other courts must decline jurisdiction.
In cases where parties have included an exclusive jurisdiction clause in their agreement, the European Court has held that it is for the court first seised to decide if the clause is valid. If it is, the court should decline to hear the case in favour of the jurisdiction the parties have chosen. But the court of that (or any other) jurisdiction cannot interfere by issuing an anti-suit injunction (Gasser ).
The exclusive right of the court first seised to decide on jurisdiction applies even if it is claimed that the proceedings brought in that court are an abuse (Turner v Grovit ).
The principle behind both cases is that the Regulation provides a complete set of uniform rules for the allocation of jurisdiction. The courts of each member state must trust the courts other member states to apply those rules correctly.
Were it not for the arbitration clause, West Tankers could have been sued in the member state where the harm occurred – in this case, Italy. The Regulation, however, specifically states that it "shall not apply" to arbitration. But what is the scope of that exclusion?
The House of Lords' view was that the exclusion covered all disputes which the parties had agreed should be settled by arbitration, including any secondary disputes connected with the arbitration. Only the arbitration tribunal and the national court supervising the arbitration had jurisdiction to decide on the validity and scope of an arbitration agreement.
The Advocate General's opinion, however, focused on the substantive nature of the claim brought in Italy and whether the Regulation applied to that action. Since that was a claim in tort for damages, it fell within the Regulation. It was for the Italian court as the court first seised to address the issue of the arbitration clause.
The European Court held that granting an anti-suit injunction was incompatible with the Regulation.
The question whether or not the Regulation applied depended solely on the subject matter of the proceedings against which the injunction was directed. The subrogated claim for damages in tort brought by Erg's insurers against West Tankers fell within its scope.
The applicability of the arbitration clause was, therefore, a preliminary issue to be decided by the Italian court. As the cases of Gasser and Turner v Grovit have shown, the jurisdiction of a court of a member state cannot be reviewed or interfered with by the court of another member state.
Allowing the English court to grant an anti-suit injunction in these circumstances "necessarily amounts to stripping that court of the power to rule on its own jurisdiction under [the] Regulation".
If the court first seised decides an arbitration clause is valid and applicable, then under Article II (3) of the New York Convention on arbitration (to which all EU member states are parties) it must refer the dispute to arbitration if one of the parties requests it.
By applying the same approach to arbitration as it has applied to an exclusive jurisdiction clause, the European Court has removed the English court's ability to use an anti-suit injunction to uphold an arbitration clause if proceedings are issued elsewhere in the EU.
But, although the ruling has potentially created an additional step in the proceedings, the European Court was careful to point out that the outcome should be the same since, if there is a valid arbitration clause, the court will be obliged under the New York Convention to refer the matter to arbitration in any event.
The decision, however, could increase the potential for inconsistent decisions if, say, a London tribunal presses on with the arbitration while the foreign court is still deciding on the arbitration clause.
The real issue for parties wanting to include an arbitration clause in their contract, therefore, is to ensure that the clause will stand up to scrutiny.