English court can't stop Italian lawsuit despite arbitration agreement, ECJ says

Out-Law News | 11 Feb 2009 | 9:18 am | 1 min. read

An English court cannot order someone not to take action in an Italian court in a civil matter even though there was an agreement between the companies involved to settle disputes through arbitration in London, the ECJ has ruled.

In a complex shipping case that went to the House of Lords the owner of a ship tried to stop a court case against it happening in Italy. The insurers of a company that had chartered the ship had paid out when the ship collided with a jetty in Italy and sought to recover that money from the ship's owners, West Tankers.

West Tankers took action in London because the charter agreement had said that disputes would be settled by arbitration in London. The House of Lords asked the European Court of Justice (ECJ) if a UK court was allowed to order the insurance companies, Allianz and Generali, not to take action in Italy because there was an arbitration agreement in place.

The ECJ said that such an order would be against the principles of EU law. If a UK court ordered for litigation in another country to cease it would obstruct the powers of that other court to carry out its functions, the ECJ said.

No court can decide whether another Member State's court has jurisdiction in a matter, it said.

Such an order would also undermine the legal recourse which companies or individuals have a right to even when there is agreement on arbitration.

If one party to an arbitration agreement thought it void then to stop it taking court action would be to ensure that that company was "deprived of a form of judicial protection to which it is entitled".

The ECJ concluded that it was not possible for "a Member State to make an order to restrain a person from commencing or continuing proceedings before the courts of another Member State on the ground that such proceedings would be contrary to an arbitration agreement".