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Enforcement of declaratory award (Commercial Court)
Practical Law UK Legal Update Case Report 6-508-8155 (Approx. 6 pages)
Enforcement of declaratory award (Commercial Court)
by PLC Arbitration
| Published on 05 Oct 2011 • England, Wales |
In African Fertilizers and Chemicals Nig Ltd (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg [2011] EWHC 2452 (Comm), the Commercial Court considered the question of whether an order to enforce a declaratory arbitration award can be enforced under the Arbitration Act 1996, particularly in circumstances where the claimant is seeking to establish that the award takes primacy over any subsequent inconsistent judgment from an EU court.
Speedread
In African Fertilizers and Chemicals Nig Ltd (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg [2011] EWHC 2452 (Comm), the Commercial Court considered the question of whether an order to enforce a declaratory arbitration award can be enforced under the Arbitration Act 1996, particularly where the claimant is seeking to establish that the award takes primacy over any subsequent inconsistent judgment from an EU court.
The claimant, having obtained a declaratory award stating that the tribunal had jurisdiction over the claims between the parties, was given leave to enforce the award and enter judgment against the defendant. On the defendant's application to set aside the order, the court held that it had jurisdiction to make the order under section 66 of the Arbitration Act 1996, despite the fact that the material parts of the order were declaratory.
The court followed the approach taken in West Tankers Inc v Allianz SpA and another [2011] EWHC 829 (Comm). The court considered that the order granting leave to enforce the declaratory award and enter judgment against the defendant would facilitate the claimant in realising the benefit of the award. This was because there was a real prospect that having judgment entered in terms of the award would establish the primacy of the award over any inconsistent judgment that may be rendered by the Romanian court.
The case provides a clear endorsement of the decision in West Tankers. However, in both the present case and in West Tankers, it remains to be seen how the courts will approach the issue of whether the English judgments on the respective declaratory awards will be regarded as irreconcilable with the counterpart foreign judgments for the purposes of Article 34(3) of the Brussels Regulation.
Background
Enforcement of awards in England
An award made by a tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court (section 66, Arbitration Act 1996).
For further information about enforcement, and the differences between the section 66 procedure and an action on the award, see Practice note, Enforcing arbitration awards in England.
A declaratory award may be enforced by the court under section 66 of the Arbitration Act 1996, where there is a reasonable prospect of the award creditor establishing the primacy of the award over an inconsistent judgment (West Tankers Inc v Allianz SpA and another [2011] EWHC 829 (Comm), considered in Legal update, Declaratory award can be enforced (Commercial Court)). Field J stated that where:
"the victorious party's objective … is to establish the primacy of a declaratory order over an inconsistent judgment, the court will have jurisdiction to make a section 66 order because to do so will be to make a positive contribution to the securing of the material benefit of the award."
Recognition and enforcement
There is a fundamental difference between the terms "recognition" and "enforcement". An award may be recognised without being enforced, but if the award is enforced, it must necessarily first be recognised by the court ordering enforcement.
For further discussion, see Practice note, Enforcing arbitration awards in England: Recognition and enforcement.
Brussels Regulation
The Brussels Regulation on jurisdiction and the enforcement of judgments in civil and commercial matters provides:
"A judgment shall not be recognised: ...3. If it is irreconcilable with a judgment given in a dispute between the same parties in the Member State in which recognition is sought."
(Article 34.)
In Solo Kleinmotoren v Boch (Case C-414/92) [1994] ECR I-2237, the ECJ said:
"... in order to be a 'judgment' for the purposes of the [Brussels] Convention the decision must emanate from a judicial body of a Contracting State deciding on its own authority on the issues between the parties".
The court also stated that Article 27 of the Brussels Convention (which is equivalent to Article 30 of the Brussels Regulation) was an obstacle to the free movement of judgments by a simple and rapid enforcement procedure, and "must therefore be interpreted strictly, which precludes treating a court settlement as a judgment given by a court or tribunal".
In National Navigation Co v Endesa Generacion SA (The Wadi Sudr) [2009] EWCA Civ 1397, Waller LJ stated that, where the English court had granted a declaration that an arbitration clause was incorporated into a contract (in that case a bill of lading) and a court in another member state subsequently refused to stay proceedings in that state "the claimant in England could proceed with the arbitration in England; if that were inconsistent with the judgment obtained in the member state then that would provide an answer on its own" (at paragraph 63).
Facts
A dispute arose between the claimant ship-owner, BD Shipsnavo GmbH & Co Reederei KG, and the defendant, African Fertilizers and Chemicals NIG Ltd (Nigeria) under a bill of lading. The bill of lading incorporated the terms and conditions of an underlying charter-party, which included a clause referring disputes to arbitration in London.
The defendant commenced arbitration proceedings in Romania. The High Court granted an injunction restraining the defendant from continuing the Romanian arbitration, and arbitration was commenced in London in accordance with the bill of lading arbitration clause.
The defendant commenced court proceedings in Romania. The High Court granted an interim declaration that the arbitration clause in the charter-party was validly incorporated into the bill of lading and was binding on the defendant, and that the Romanian court proceedings and arbitration proceedings were in breach of the agreement to arbitrate.
Subsequently, the arbitral tribunal in the London arbitration granted a declaratory award in favour of the claimant, holding that it had jurisdiction over the claimant's claim for a declaration of entitlement to a contribution, and over the defendant's claim for a declaration of non-liability.
The clamant obtained an order granting it leave, under section 66 of the Arbitration Act 1996, to enforce the award and to enter judgment against the defendant.
The defendant applied to set aside the order on the ground that, as the material parts of the arbitration award were in purely declaratory terms, the court did not have jurisdiction to make the order.
The defendant submitted that:
- The decision in West Tankers (which is under appeal) was wrong and should not be followed.
- A judgment entered under section 66 in the terms of an arbitration award, does not constitute a judgment within the meaning of the term in Article 34 of the Brussels Regulation. This is because the judgment does not involve any consideration by the court of the issues between the parties and is simply a mechanism for summary enforcement. Accordingly, entering judgment in terms of the award under section 66 would not give the claimant what it wanted and therefore there is no purpose in doing so.
Decision
Beatson J dismissed the defendant's application, holding that the court had jurisdiction to make the section 66 order.
Enforcement
The first limb of the defendant's submissions relied on the distinction between enforcement and recognition, because the defendant contended that the claimant wished to use a judgment (entered in terms of the award) to defend any future proceedings to enforce a Romanian judgment, and that use was purely recognition and not enforcement. However, Beatson J did not think the distinction assisted the defendant. The terms "enforcement" and "enforced" in section 66 are to be given their plain meaning, which is to be ascertained in part by what is possible in an ordinary action at common law. The mere fact that an award is declaratory in nature need not offend the requirement that, for the purpose of section 66, a judgment in the form of the award entered by the leave of the court must be capable of enforcement by one of the methods of execution.
Case law shows that the common law contractual remedies in an action to enforce an award include a declaration that an award is valid, and a declaration as to an award's construction or effect.
As regards the position under the Arbitration Act 1996, Beatson J distinguished certain cases which the defendant had relied on in support of its contention that an award in declaratory terms cannot be enforced under section 66. He endorsed the conclusion in Russell on Arbitration (Sweet & Maxwell, 23rd ed, 2007) that:
"Provided the terms of the award are sufficiently clear there is no reason why a declaratory award cannot be enforced under s.66. ... Previously expressed doubts about whether an award which is couched in purely declaratory terms can be enforced can be enforced as a judgment under s.66 ... are, it is suggested, no longer applicable." (At para 8-012.)
Beatson J emphasised the distinction between cases in which a declaratory award would assist a successful party and one in which it would not. All the cases relied on by the defendant (apart from one, which had been distinguished by Field J in West Tankers) were cases in which there was no appreciable risk of the losing party obtaining an inconsistent judgment in another EU member state which it might try to enforce in England and Wales. The order made in this case facilitated the claimant in realising the benefit of the award because there was a real prospect that having judgment entered in the terms of the award would establish the primacy of the award over any inconsistent judgment of the Romanian court.
Brussels Regulation
The decision in Solo Kleinmotoren concerned a settlement reached by the parties which was recorded in an order of the court that brought the proceedings to an end. Beatson J rejected the defendant's submission that, in the light of Solo Kleinmotoren, a judgment entered under section 66 in the terms of an arbitration award does not constitute a judgment within the meaning of the term in Article 34(3) of the Brussels Regulation:
- Solo Kleinmotoren is a case about a court approved settlement. As the ECJ recognised, "settlements in court are essentially contractual". While submission to arbitration is consensual, the outcome of the arbitration and the contents of the award are not.
- The defendant's submissions were inconsistent with the decision in National Navigation Co.
- The submissions were inimical to the underlying policy considerations in this area.
Comment
The claimant's objective in obtaining leave to enforce the declaratory award was to pre-empt the enforcement of any irreconcilable judgment that may be given by the Romanian court. It remains to be seen what will happen if the Romanian court does in fact give judgment in favour of the defendant if those proceedings continue.
The decision of the Commercial Court in West Tankers to allow enforcement of the declaratory award was somewhat surprising, given that the ECJ had previously held that the anti-suit injunction granted in that case, to restrain the competing Italian proceedings, was inconsistent with the Brussels Regulation. The fact that the court has, in this case, firmly endorsed the Commercial Court's decision in West Tankers demonstrates the pro-arbitration stance which the English courts are prepared to take and the extent to which the court will entertain and permit measures which seek to mitigate the effect of the ECJ’s ruling in West Tankers.
Finally, it is interesting to compare the argument, accepted in Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 (albeit in the New York Convention context) that a declaratory award on jurisdiction could not be enforced, because the tribunal's ruling on jurisdiction was not the final word on the jurisdictional issue but was subject to challenge, as of right, in court (for further discussion, see Legal update, Dallah Supreme Court decision: full update). No such argument was run in the current case, the parties focusing instead on the declaratory form, rather than the substance, of the tribunal's decision.