West Tankers: the latest twist in the saga

Practical Law UK Articles 9-518-2000 (Approx. 4 pages)

West Tankers: the latest twist in the saga

by Kieron O’Callaghan and Julianne Hughes-Jennett, Hogan Lovells International LLP

The underlying dispute

Erg Petroli SpA chartered a vessel from West Tankers Inc. The vessel was involved in a collision with a pier in Italy owned by Erg Petroli. Responsibility for the collision was disputed.

The charterparty contained a London arbitration clause, and a London-seated arbitral tribunal was appointed under it. However, while the arbitration was in process, Erg Petroli's insurers brought a subrogated claim against West Tankers in the Italian courts to recover the monies the insurers had paid to Erg Petroli in respect of the same incident.

English/ECJ proceedings

The High Court granted an anti-suit injunction restraining the insurers from proceeding with their claims otherwise than before the tribunal (West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA (The Front Comor) [2005] EWHC 454 (Comm)).

The insurers appealed to the House of Lords ([2007] UKHL 4). The House of Lords asked the ECJ whether it was consistent with the Brussels Regulation (44/2001/EC) (the Regulation) for the court of an EU member state to make an order restraining a party from continuing proceedings in another member state where those proceedings were in breach of an arbitration agreement. (The Regulation governs jurisdiction over civil and commercial claims; it does not apply to arbitration (the arbitration exception).)

The ECJ found that such an anti-suit injunction was inconsistent with the Regulation (Case C-185/07; www.practical law.com/2-385-1001). The ECJ noted the arbitration exception, but relied on the principle of mutual trust which member states accord to the judicial systems of other member states.

In the meantime, the tribunal had made an arbitration award in West Tankers' favour (the arbitration award). The Italian proceedings remain pending.

Court of Appeal's decision

West Tankers, concerned that the insurers might obtain a favourable judgment from the Italian courts and then seek to have it recognised in England under the Regulation, sought to bypass the effect of the ECJ's ruling on the availability of anti-suit injunctions by applying to the English courts to enforce the arbitration award under section 66 of the Arbitration Act 1996 (section 66). The insurers appealed ([2011] EWHC 829 (Comm)).

In the leading judgment, Toulson LJ favoured a broader interpretation of section 66, and emphasised that the stipulation in section 66 for awards to be enforced in the same manner as a court judgment to the same effect refers to any means of giving judicial force to an award, and not just the normal forms of execution of a judgment.

The role of the courts in supporting arbitration can include giving judicial force to an arbitral award under section 66; the (merely) declaratory nature of the award was not a bar to its enforcement by the courts in an appropriate case.

Examples of situations in which it may not be appropriate to enter judgment in the terms of a declaratory award are those where there is a serious question as to the validity of the award, or where it is not in the interests of justice for the court to make such an order.

Implications

Although the Court of Appeal's decision is primarily focused on the interpretation of section 66, it may have implications beyond statutory interpretation; in particular, for parties who may not be able to enforce an arbitration agreement in the face of conflicting proceedings.

For example, following the ECJ's decision, and pending the European Commission's (the Commission) proposals for reforming the Regulation (which seek to clarify the precise scope of the arbitration exception) (www.practicallaw.com/0-504-5668), the English courts have refrained from granting anti-suit injunctions in proceedings brought in breach of arbitration agreements where the "offending" proceedings have been brought in other member states.

Meanwhile, parties seeking anti-suit relief from the English courts may choose to obtain a declaratory judgment (where possible) to circumvent the practical effect of the ECJ's restriction on granting anti-suit relief (in other words, to use the subsequent award as a means to "shield against" enforcement of a future conflicting judgment, thereby securing the benefit of the outcome of the arbitration agreement).

In West Tankers' case, pending the outcome of the Commission's proposals, it remains to be seen whether it is, in practice, able to use the award in the form of a judgment to impede enforcement in the English courts by the insurers of any judgment of the Italian courts. (See box "Other options for arbitration".)

Kieron O'Callaghan is a partner and Julianne Hughes-Jennett is Of Counsel in the International Arbitration Group at Hogan Lovells International LLP.

Other options for arbitration

What other options are available to parties seeking to protect their right to arbitrate?

Rely on the arbitral tribunal

The tribunal already has power, if the parties have agreed, to grant interim relief (section 39, Arbitration Act 1996) (1996 Act) and, unless otherwise agreed by the parties, to make declarations as to any matter to be determined in the arbitration and to order a party to do or refrain from doing anything (section 48, 1996 Act).

In addition, UNCITRAL has amended Article 17 of its Model Law to provide the tribunal with the power to grant interim measures to protect the arbitration process itself (this effectively amounts to an ability to grant an anti-suit injunction). There would, no doubt, be significant problems with the enforcement of such an interim order, but practice shows that most parties do not lightly ignore orders from the tribunal.

Alternatively, the parties could seek directions from the tribunal against the parties pursuing proceedings in foreign courts in breach of the arbitration agreement. During contractual negotiations, the parties should also consider including an arbitration clause that confers on the arbitrators the specific power to grant interim relief.

A "nuclear option" would be to ignore the proceedings before the foreign courts and ask the tribunal to get on and issue its award. However, such a strategy brings with it the obvious risk that any subsequent enforcement against any assets in the country of the particular foreign court would be precluded.

Damages

Parties should consider seeking damages for breach of the arbitration clause from the tribunal in the event that a foreign court subsequently decides that there is a valid arbitration clause and stays its proceedings. The English courts have held that damages representing indemnity costs are appropriate where an agreed dispute resolution procedure has been disregarded.

Pre-emptive anti-suit relief

A party wishing to commence an arbitration could at the same time (or earlier) seek an anti-suit injunction from the English court before any other court has been seised of the proceedings, although this is not certain to work in the post-West Tankers' world.

Trust the court

Finally, there is always the option to "trust" the court where the proceedings have been commenced. However, in many cases, the litigation delay can amount to a de facto loss of the right to arbitrate as parties effectively frustrate the arbitration agreement by getting bogged down in slow litigation. In addition, the interpretation of Article II of the New York Convention is often uneven in different courts and therefore a parties' right to arbitrate may not be respected, irrespective of what seat/supervising national court the parties have chosen.

West Tankers: the latest twist in the saga | Practical Law