I. INTRODUCTION
On 6 December 2012, the Council of the European Union announced that it had adopted the recast of the Brussels I Regulation (the ‘Recast Regulation’),Footnote 1 the stated purpose of the Recast Regulation being ‘to make the circulation of judgments in civil and commercial matters easier and faster within the Union, in line with the principle of mutual recognition’.Footnote 2
A key aspect of the reforms to the Brussels I Regulation was the question of arbitration—how should it be treated within the Recast Regulation if at all?Footnote 3 Recital 12 of the Recast Regulation provides the answer to that questionFootnote 4 stating that ‘[the Recast Regulation] should not apply to arbitration’. Of course, to those familiar with the West Tankers saga,Footnote 5 it is clear that those words in themselves (which formed a part of Brussels I, and do form a part of the Recast Regulation, as Article 1(2)(d)) are not enough to exclude all elements of arbitration and arbitral practice from the scope of the European private international law regime. It is therefore the four paragraphs that follow the initial sentence above that are of particular relevance to practising lawyers and, of course, the question of how Recital 12 is likely to be interpreted in practice and how it is likely to affect arbitration in Europe. It is this issue that is the focus of this article.
As to the structure of the article, Section II will outline, in brief, the key aspects of the West Tankers Footnote 6 decision as well as setting out the key English case to consider the reasoning of the decision.Footnote 7 Section III will concern itself with how Recital 12 is likely to be applied and how it is likely to affect arbitral practice in Europe. This issue will be addressed by considering several practical issues of arbitral practice and the necessity of reversing elements of the West Tankers Footnote 8 decision to achieve the best result; namely, (i) the content of Recital 12 itself; (ii) whether injunctive relief, in particular (but not restricted to) the anti-suit injunction, will once again be permitted within Europe in support of arbitration; (iii) the position of the arbitral tribunal vis-à-vis a determination by a Member State court, not being the court at the seat, that the arbitration agreement is invalid; (iv) the effect of a substantive determination of the issues in dispute by a Member State court, not being the court at the seat, on the arbitral tribunal; and, finally, (v) a brief summary of the position advocated for in this article.
II. WEST TANKERS
As the effects of the West Tankers Footnote 9 decision are relatively well known, it is not proposed to spend too much time discussing them here.
A. The Facts
In brief, Erg Petroli SpA (‘Erg’) chartered a vessel from West Tankers—the Front Comor. In 2000, this vessel collided in Syracuse (Italy) with a jetty owned by Erg causing damage. Erg claimed compensation from its insurers, Allianz and Generali, and commenced arbitration proceedings in London against West Tankers under the charterparty. Allianz and Generali paid out to Erg and, as permitted under Italian law, exercised their right of subrogation so as to sue West Tankers in Italy for the sums they had paid out to Erg. West Tankers raised a jurisdictional objection before the Italian court. At the same time, West Tankers commenced proceedings before the Commercial Court in London for a declaration that the dispute between Allianz and Generali was to be settled by arbitration and an order that Allianz and Generali discontinue the proceedings in Italy.
B. The Decision of the ECJ
The House of Lords referred to then ECJ then question of whether it was consistent with Brussels I for a court of a Member State to make an order to restrain a person from commencing or continuing proceedings in another Member State on the ground that such proceedings are in breach of an arbitration agreement.Footnote 10
The ECJ answered the House of Lords’ question in the negative.Footnote 11 Although the ECJ found that the anti-suit injunction proceedings themselves fell outside the scope of Brussels I,Footnote 12 it recognized that such proceedings could have an effect on other court proceedings which undoubtedly fell within the scope of Brussels I.Footnote 13 Proceedings undoubtedly fell within the scope of Brussels I even if they addressed arbitration as an incidental question.Footnote 14 Thus, the fact that the Italian proceedings addressed the issue of the validity of the arbitration agreement was not in itself enough of a reason to take that element of the proceedings outside of the scope of Brussels I.Footnote 15 Instead, the issue of the arbitration agreement was merely incidental to a question (the liability to pay damages) which undoubtedly fell within the scope of Brussels I.
The result was that as the Italian proceedings fell within the scope of Brussels I, the English court could not interfere with that court's right to rule on its own jurisdiction under Brussels IFootnote 16 as to do so would be to run counter to the principle established in Overseas Union Insurance Footnote 17 and Erich Gasser Footnote 18 that no one court is better placed to interpret and apply the rules of jurisdiction established under Brussels I than any otherFootnote 19 and, further, would run counter to the principle of mutual trust which was the founding basis of the regime established by the Brussels ConventionFootnote 20 and, subsequently, Brussels I.Footnote 21
Suffice it to say that the ECJ's decision was heavily criticized by commentators.Footnote 22 However, what is most intriguing for present purposes is how further issues arising in arbitral practice have been addressed and questions answered by the English courts in light of the West Tankers Footnote 23 decision. These issues will now be considered.
C. The Wadi Sudr
The key English decision to apply the West Tankers Footnote 24 decision is that of the Court of Appeal in The Wadi Sudr.Footnote 25 The facts, put shortly, were these. Endesa was a Spanish electricity company incorporated in Spain. It had purchased an amount of coal which was shipped aboard one of National Navigation Co's vessels, The Wadi Sudr. The coal was delivered late and, as a result, Endesa sued National Navigation Co in Spain. National Navigation Co, in response, submitted to the Spanish court that it had no jurisdiction as a result of the arbitration clause incorporated into the bill of lading between it and Endesa. Further, National Navigation Co commenced proceedings in London under the bill of lading's arbitration agreement for a declaration that it was under no liability to Endesa. The issue of the tribunal's jurisdiction was, with the permission of the tribunal, referred to the Commercial Court in England. The Spanish court found that there was no arbitration clause incorporated into the bill of lading. However, the Spanish court stayed its proceedings until the English court had decided the issue of jurisdiction before it. The issue of central importance, therefore, was whether the English court was bound, by virtue of Brussels I, by the Spanish court's determination that the arbitration clause had not been incorporated into the bill of lading.
Both Waller and Moore-Bick LJJ gave full and reasoned judgments in the case. This alone should highlight the importance of the issues which had to be considered by the Court of Appeal. In short, the Court of Appeal, reversing the decision of the High Court,Footnote 26 found in favour of Endesa on three grounds. First, applying West Tankers,Footnote 27 it was necessary to consider the substance of the proceedings in issue when determining whether a ruling on the validity of an arbitration clause was a judgment which had to be recognized and enforced under Chapter III of Brussels I. Where the nature of the proceedings fell within the scope of Brussels I, it was irrelevant that the issue of the validity of the arbitration clause was dealt with as a preliminary issue—the proceedings fell within the scope of Brussels I and the resultant ruling on the validity of the arbitration clause was binding on other Member State courts.Footnote 28 Second, the fact that the arbitration proceedings themselves fell outside the scope of Brussels I did not mean that the judgment of the Spanish court was not binding on the arbitration proceedings. The Spanish judgment could, and in this case did, give rise to an issue estoppel the effect of which would be to prevent the arbitration tribunal from claiming that it had jurisdiction under the arbitration agreement.Footnote 29 Third and finally, public policy was irrelevant to the issue of the recognition or enforcement of the Spanish court's decision. In short, the fact that the English court may have come to a different decision as to the validity of the arbitration agreement was not in itself enough to say that the Spanish judgment obtained in breach of that arbitration agreement was manifestly contrary to public policy.Footnote 30
Thus, a relatively broad interpretation was given to the scope of the West Tankers Footnote 31 judgment. The question now, in light of Recital 12, is whether the same approach to arbitration can or will be taken under the Recast Regulation. Although it seems relatively obvious that the straightforward answer to this is no, there is the more difficult question which needs to answered; namely, even if the West Tankers Footnote 32 effect is sought to be reversed by Recital 12 is it sought to be reversed in its entirety or will aspects of the judgment still affect arbitral practice within the EU?
III. RECITAL 12 AND WEST TANKERS
A. The Contents of Recital 12
The first paragraph of Recital 12 provides that the Recast Regulation should not be construed so as to prevent a court, when seised of an action under the Recast Regulation the subject matter of which the parties have agreed to refer to arbitration from referring the parties to arbitration, staying or dismissing the proceedings or from examining the validity of the arbitration agreement. The second paragraph of Recital 12 provides that a ruling, whether as a principal or incidental issue that an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement under the Recast Regulation. The third paragraph of the Recital, however, provides that a substantive determination following a ruling that an arbitration agreement is invalid is subject to the rules of recognition and enforcementFootnote 33 under the Recast Regulation. Specific attention, however, is now drawn to the Member States’ obligations under the New York ConventionFootnote 34 to which the Recast Regulation is expressly stated to be without prejudice.Footnote 35 Finally, the fourth paragraph of Recital 12 states that the Recast Regulation should not be considered applicable to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration or any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.
The key focus of the discussion here is how Recital 12 is likely to be interpreted. An issue that is related to this is the extent to which the CJEU, when interpreting Recital 12, is likely to reverse the effect of the West Tankers Footnote 36 decision or the change in approach to arbitration advocated therein. These related questions will be answered by considering a series of sub-issues related to arbitral practice which, in the author's opinion, best bring out both the extent to which the West Tankers Footnote 37 decision appears to have been reversed by Recital 12 and the extent to which it has been left in place.
B. The Availability of Injunctive Relief in Support of Arbitration
As referred to above, one of the key elements of the West Tankers Footnote 38 decision was that a Member State court was not entitled to grant injunctive relief to prevent a person from commencing or continuing proceedings in another Member State court where those proceedings had been commenced in breach of an arbitration agreement. An important question therefore is, in light of Recital 12, is it possible for a Member State court to grant injunctive relief under the Recast Regulation in support of arbitration?
The answer to this question is not as straightforward as it may at first seem.Footnote 39 The fourth paragraph of Recital 12 could arguably be construed in such a way as to permit such injunctive relief. A permissive reading of the fourth paragraph would suggest that any ancillary proceedings relating to arbitration (as the use of the term ‘in particular’ suggests that the list of proceedings is illustrative as opposed to exhaustive) fall outside the scope of the Regulation and the Regulation ‘should not apply’ to them. Clearly, an application to the English Commercial Court for an anti-suit injunction in support of arbitration, such as that in the West Tankers Footnote 40 case itself, constitutes ancillary proceedings relating to arbitration. Indeed, this was stated in no uncertain terms by the then ECJ in the West Tankers Footnote 41 case. If the Recast Regulation ‘should not apply’ to such proceedings, it is at least arguable that the effects of the Recast Regulation should not be felt in those proceedings at all.Footnote 42 As a result, it could be said that an English court might, conceivably, be permitted to grant an anti-suit injunction in favour of arbitration without consideration of the effect that this would have on the functioning of the Recast Regulation. In effect, the fact that the Recast Regulation ‘should not apply’ to such proceedings means that it ‘should not affect’ such proceedings. There are, however, several arguments that militate against such a conclusion.
First, the second and third paragraphs of Recital 12 draw a clear distinction between a ruling on the validity of the arbitration clause and a ruling on ‘the substance of the matter’. While the former is not subject to the recognition and enforcement regime under the Recast Regulation, the latter is. In other words, if a Member State court which is not the court at the seat of the arbitration determines that the arbitration agreement is invalid and then goes on to rule on the substantive issues in dispute, that second element of the decision is fully exportable to other Member States—including the Member State which constitutes the seat of the initial arbitration. As a result, the ‘mutual trust’ element which informed the West Tankers Footnote 43 decision (and the importance of the principle is expressly preserved by Recital 26 of the Recast Regulation) still has something to say here. Indeed, in West Tankers the then ECJ was clear that the ‘evil’ of the anti-suit injunction was that it took away another Member State court's right to determine whether, under the rules of the Regulation, it had jurisdiction to determine the dispute before it.Footnote 44 It was this element of the effect of the anti-suit injunction that ran contrary to the principle of mutual trust embodied in the Regulation.Footnote 45 Considering the Recast Regulation, then, it seems relatively clear that Recital 12 does not in any way affect a Member State court's right to determine its own jurisdiction. Indeed, the very fact that the substantive judgment is a ‘full’ Recast Regulation Judgment (in the sense that it may be transported around the EU just like any other) would suggest that the validity or otherwise of the arbitration agreement is seen as a side issue. The effect of the anti-suit injunction can be read negatively in one of two ways. The first, and perhaps more acceptable reading, is that the anti-suit injunction removes the Member State court's sovereign right to produce a substantive judgment that is a full Recast Regulation judgment.Footnote 46 In this manner, the functioning of the Recast Regulation is affected and it is not enough to say that the Regulation ‘should not apply’ to the anti-suit injunction proceedings. The second reading is, quite simply, that the Regulation does in some way apply to arbitration—it allows each Member State court to determine whether the arbitration agreement is valid. In other words, the jurisdictional element of the Recast Regulation does in some way apply to arbitration while the recognition and enforcement element of the Recast Regulation does not. Thus, the anti-suit injunction interferes directly with the right of the Member State court to determine its own jurisdiction under the Recast Regulation itself.
A second reason for stating that, at the very least, an anti-suit injunction in support of arbitration is no more permissible under the Recast Regulation than it was under Brussels I relates to the fact that the second element of the third paragraph of Recital 12 refers specifically to the position of the New York Convention. By virtue of the third paragraph of Recital 12, a Member State judgment ordinarily enforceable under the Recast Regulation is without prejudice to a New York Convention award. This would seem to suggest that if a situation arises where there is a Recast Regulation judgment and a New York Convention award, both of which rule on the same substantive issues but come to different conclusions, the Member State court is no longer obliged to recognize or enforce the judgment of the Member State court. It would seem that under Article 45 of the Recast Regulation this could either be achieved under Article 45(1)(a) (manifestly contrary to public policy—however, see below as to the limited scope of such a refusal) or Article 45(1)(d) (irreconcilable with an earlier judgment in a third State). Thus, that element of The Wadi Sudr Footnote 47 which states otherwise would no longer be acceptable under the Recast Regulation. As to what effect this has on the re-emergence of the anti-suit injunction in favour of arbitration, it is simply this: as there is an express recognition in the Recast Regulation of the position of the New York Convention, there would appear to be no immediate need for the anti-suit injunction as a Member State court could simply refuse the enforcement of the Member State judgment and enforce the award under the New York Convention.
Further, it seems reasonable to argue that the position would be the same where the national court asked to enforce the judgment of another Member State court was also the court at the seat of the arbitration. In such a situation, the Member State court at the seat should be able to enforce the award under its own national law (in England, section 66 of the Arbitration Act 1996 or through bringing an action on the award) and refuse enforcement of the Member State judgment under Article 45(1)(a) of the Recast Regulation. It is, admittedly, somewhat peculiar that reference has been made to the New York Convention which only applies to ‘foreign’ arbitral awards (it does not apply to an award rendered and sought to be enforced at the seat of the arbitration), only passing reference having been made to enforcement more generally in the fourth paragraph of Recital 12. However, it would be far more peculiar if the court at the seat of the arbitration, when choosing between the arbitral tribunal and a Member State court, was put to some disadvantage as against a third Member State court. In other words, if a (non-seat) French court is able to refuse the enforcement of a Greek court judgment in favour of a London arbitration award, why should the (seated) English court not be able to do the same, particularly if a significant number of the judgment debtor's assets are located in England?
Thus, the concern of the anti-suit injunction is to prevent abusive litigation tactics by restraining the wrongful conduct of one party and holding him to his contractual bargain.Footnote 48 The Regulation also aims to prevent abusive litigation tactics and achieves this by granting Member State courts the opportunity to simply refuse the enforcement of the infringing Member State judgment.
Even if, however, it is accepted that the anti-suit injunction is no more valid under the Recast Regulation than it was under Brussels I, this does not mean that all injunctive relief is not permissible under the Recast Regulation. A remedy closely related to that of the anti-suit injunction is the anti-enforcement injunction. It is at least arguable that such a remedy is permissible under the Recast Regulation in support of arbitration and may, indeed, be permissible under Brussels I as it currently stands.
The effect of an anti-enforcement injunction is to prevent a party from enforcing a court judgment (or arbitral award) until the party's contractual (or, presumably, equitable) dispute resolution obligations have been exhausted. Although authority for the existence of the anti-enforcement injunction is somewhat sparse, it does exist in English law.Footnote 49 The question, therefore, is whether there is any reason why such a remedy exercised in support of arbitration would not be permissible under the Recast Regulation.
As stated above, the Recast Regulation's Recital 12 seems to expressly preserve the right of a Member State court to determine its own jurisdictional competence under the Recast Regulation even where arbitration is involved. For this reason, the anti-suit injunction simply cannot be permitted to exist under the new regime. The anti-enforcement injunction, however, does not interfere with the ability of the Member State court to determine its jurisdiction under the Regulation. Indeed, Lord Hobhouse's arguments in favour of the anti-suit injunction in Turner v Grovit Footnote 50 could be said to be more suited to the anti-enforcement injunction. The effect of the anti-enforcement injunction is to hold the parties to their contractual bargain—it really does say nothing of the foreign court's ability to determine its own competence. Indeed, if anything, the anti-enforcement injunction actually places the competence of the foreign court to determine its own jurisdiction above the interests of the contracting parties as it allows proceedings commenced in breach of a contractually agreed arbitration clause to continue. Its only effect is to stop the parties from taking action on the judgment until the position under the arbitration agreement has been determined.
A further reason for arguing that the anti-enforcement injunction would appear to be a permissible form of injunctive relief under the Recast Regulation relates to the fact that the concept of mutual trust as set out in West Tankers seems to deal specifically with the issue of jurisdiction—it says little of the issue of recognition and enforcement. Of course, it seems fair to say that the two issues are linked. However, whereas in the case of jurisdiction there is a strict one-dispute, one-court rule there is a permissive system of recognition and enforcement. Although exequatur may have been removed from the Recast Regulation, it is still possible to refuse recognition and enforcement of the judgment of a Member State court—the Member State court's right to have its judgment enforced throughout Europe, unlike its right to determine its own jurisdiction, is simply not sacrosanct.Footnote 51 Thus, in the particular situation where a Member State court renders a judgment in breach of an arbitration agreement but before the arbitration tribunal has rendered its award, it could be said that the anti-enforcement injunction actually furthers the aims of the Recast Regulation as it gives the Member State court faced with a judgment in breach of the arbitration clause the ammunition to refuse the enforcement of that judgment on the ground that it is contrary to public policy by pointing to an arbitration award which has both determined the issue of jurisdiction and the substantive issues in dispute. If this was not the case, it would be somewhat impossible for the Member State court to refuse enforcement of the infringing judgment at a time before the arbitration award had been rendered. The reason for this is simple: Article 45(3) states in no uncertain terms that ‘the jurisdiction of the court of origin may not be reviewed. The test of public policy … may not be applied to the rules relating to jurisdiction’. Thus, even if the Member State court's determination that an arbitration agreement is invalid falls outside the scope of the Recast Regulation, it still acts as part of the basis for that court's determination that it has jurisdiction. Another Member State court, aware that an arbitral tribunal's award was pending, would not be able to refuse the enforcement of that other Member State court's judgment on the basis that there was a valid arbitration agreement as by doing so it would have to state that the other Member State court had wrongly assumed jurisdiction under a particular provision of the Recast Regulation after making such a determination in relation to the arbitration agreement. Once, however, the arbitral tribunal had rendered its award, the public policy refusal would not be based upon the fact that the other Member State court had incorrectly assumed jurisdiction in the particular case. Instead, it would be based upon the fact that an arbitral award had been rendered which conflicted with the Member State court's judgment and which, after the issue of the jurisdiction of the arbitral tribunal had been considered by the court asked to enforce the award over the judgment, was found to contradict the contractual bargain between the parties as well as the Member State's obligations under the New York Convention or, if the court concerned is the seat court, under its own national law.
A related question is whether the use of the anti-enforcement injunction would be permissible under Brussels I as it currently stands. As Waller LJ stated in The Wadi Sudr, ‘if the English court is bound to recognize the decision of the [other Member State court as to the validity or otherwise of the arbitration agreement], there is simply no room for any argument that in some way public policy is being infringed’.Footnote 52 Thus, the very interpretation that is given to the public policy exception when looking at arbitration precludes the possibility of refusing recognition or enforcement of a Member State judgment rendered in breach of the arbitration agreement. As a result, although an anti-enforcement injunction is perhaps possible, it is a remedy without any teeth as the party against whom the remedy is directed would, at best, only be prevented from enforcing the judgment until both dispute resolution procedures had been exhausted and, at the stage at which they had been exhausted, it would be the Member State court judgment that would take precedence as there would be no applicable grounds on which to refuse the recognition or enforcement of the judgment.
C. The Position of the Arbitral Tribunal vis-à-vis a Determination That the Arbitration Agreement Is Invalid
This issue relates to the situation where a Member State court (not being the court at the seat of the arbitration) renders a judgment on a preliminary issue that an arbitration agreement is invalid where arbitration proceedings have already been commenced but the issue of jurisdiction has not yet been decided. In such a situation and on the assumption that the Recast Regulation is in force, does the determination of the Member State court as to the validity of the arbitration agreement have any effect on the determination of that question by the arbitral tribunal?
In The Wadi Sudr,Footnote 53 Moore-Bick LJ referred to the well-known principle that where a foreign court is regarded under English conflict of laws rules as having jurisdiction which is final and conclusive on the merits, that judgment is entitled to recognition at common law and where the arbitrators themselves are applying English law, including its conflict of laws rules, they are bound to give effect to that principle.Footnote 54 The effect in The Wadi Sudr, which appears to tie in with the reasoning of Waller LJ,Footnote 55 was that although the arbitrators themselves were not bound by Brussels I, they were bound to apply English conflict of laws rules. Under English conflict of laws rules, the Spanish court would have had jurisdiction as a result of Brussels I. This would be so regardless of section 32(1)(a) of the Civil Jurisdiction and Judgments Act 1982 (which requires a court to refuse recognition or enforcement of a judgment where the proceedings leading to that judgment were brought contrary to an agreement under which the dispute was to be settled otherwise than by proceedings in the courts of the country rendering the judgment) as subsection (1) is made subject to subsection (4) which preserves the position of Brussels I (under which no similar ground exists). As a result, the Spanish decision gave rise to an issue estoppel which bound the arbitrators.
The key question, therefore, is whether anything has changed as a result of the Recast Regulation. The answer must surely be yes. If one starts from the proposition that English conflict of laws rules are to be applied by the arbitral tribunal (it being assumed that the hypothetical arbitration for these purposes is governed, procedurally and substantively, by English law), the key issue is whether these rules, in light of the Recast Regulation, would require the arbitral tribunal to recognize the judgment of a Member State court as to the validity of the arbitration agreement. Recital 12 seems to suggest not: the very fact that Recital 12 states that the determination of a Member State court that an arbitration agreement is invalid is not a judgment which is subject to the recognition and enforcement regime means that it is not one, under English conflict of laws rules, which the arbitral tribunal must recognize. In essence, although the Member State court would appear to have ‘jurisdiction’ to decide the substantive issues in dispute under the Recast Regulation (an issue considered below), it would not have ‘full jurisdiction’ so-called under the Recast Regulation to decide the issue of the validity of the arbitration agreement. In other words, the Member State judgment, by virtue of the treatment of rulings on the validity of arbitration agreements under the Recast Regulation, would not be ‘final and conclusive’ for the purposes of English conflict of laws rules and would not, therefore, result in a judgment capable of giving rise to an issue estoppel. This would, of course, tie in with the position under section 32 as the arbitration tribunal would be entitled not to recognize the judgment relating to the validity of the arbitration agreement by virtue of section 32(1)(a) and this would not fall foul of section 32(4)(a) as a result of the treatment of such decisions under Recital 12.
D. The Effect of a Substantive Determination on the Arbitral Tribunal
A question related to that of the binding nature of a determination in respect of the validity of the arbitration agreement is that of the binding nature of a determination in respect of the substantive issues in dispute. Somewhat worryingly, it would seem that Recital 12 would be unlikely to change the position vis-à-vis the binding nature of a Member State judgment rendered in breach of an arbitration agreement on the arbitral tribunal.
Considering the reasoning of Moore-Bick LJ above once more, the key issue for an arbitral tribunal applying English law is, in this case, the proper application of English conflict of laws principles. Again, the relevant principle is that where a foreign court is regarded under English conflict of laws rules as having jurisdiction which is final and conclusive on the merits, that judgment is entitled to recognition at common law and may give rise to an issue estoppel in related proceedings. The effect of Recital 12 is to ensure that a judgment of a Member State court on the substantive issues in dispute is a ‘full’ Recast Regulation judgment—it is entitled to recognition and enforcement under the Recast Regulation. As a result, it is a judgment that is final and conclusive on the merits and is entitled to recognition at common law. Section 32(1)(a) of the Civil Jurisdiction and Judgments Act 1982 is of no use as it cannot interfere with the functioning of the Recast Regulation by virtue of section 32(4)(a). As a result, an issue estoppel can arise in the arbitral proceedings as to the substantive issues in dispute. In effect, although the arbitral tribunal may determine conclusively that it has jurisdiction under English conflict of laws rules, it would seem that that is all it can determine where a Member State court has ruled upon the substantive issues in dispute.
The above seems like a wholly unsatisfactory result. Is there, however, any way to escape that conclusion? As stated previously, the third paragraph of Recital 12 specifically states that the recognition or enforcement of a court's judgment on the substantive issues in dispute ‘should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the [New York Convention] which takes precedence over this Regulation’ (emphasis added). The obvious question, then, is whether the New York Convention proves of any assistance? The first point to note is that it is of no help at all to the arbitral tribunal—the New York Convention is concerned with the enforcement of arbitral awards by national courts. It says nothing of the position of the arbitral tribunal itself. A second, closely related, point is that it is of no help to the court at the seat—the New York Convention only applies to foreign awards.
1. Foreign awards under the New York Convention
The first issue, therefore, is whether the New York Convention itself would provide for some ‘escape mechanism’ in a situation where a Member State court had ruled on the substantive issues in dispute and, subsequently, an arbitration tribunal (most likely refusing to apply English conflict of laws rules) had rendered an award on those same substantive issues. Reading Articles III and V of the New York Convention together, it seems that there is a method by which the unsatisfactory results rendered by Recital 12 can be avoided. Article III of the New York Convention states that ‘Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied on’ (emphasis added). Thus, there is a non-discretionary obligation on Contracting States to both recognize and enforce arbitral awards.Footnote 56 Article V exhaustively provides the grounds upon which the recognition or enforcement of a New York Convention award can be resisted—if none of the grounds are applicable, the award will be recognized or enforced.Footnote 57 What is of immediate note is that Article V does not contain an exception to recognition or enforcement on the basis of an error of law. Thus, the fact that an arbitral tribunal had not applied English conflict of laws rules when it probably should have so as to find that the judgment of a Member State court as to the substance of the issues in dispute was binding on it would not be enough to allow for the refusal of the enforcement of the award. There are, however, several possible ways in which a party could argue that the award was not entitled to recognition or enforcement under Article V.
Article V(1)(a) makes it clear that for an award to be recognized or enforced, it must be derived from an arbitral agreement within the meaning of Article II. Article II(3) of the New York Convention which deals with the Contracting States’ obligations to refer disputes to arbitration states that there must be a referral to arbitration ‘unless [the court] finds that the said agreement is null and void, inoperative or incapable of being performed’. Thus, where the agreement is ‘null and void, inoperative or incapable of being performed’, it is not entitled to recognition or enforcement under the New York Convention. In the current situation, it could be argued that an arbitration agreement would be rendered ‘inoperative’Footnote 58 by the judgment of a Member State court on the basis that the arbitral tribunal was only properly able to render an award on jurisdiction and not on the substantive issues in dispute. As such an award would appear to be an award without purpose (in the sense that the only remaining effect of the arbitration agreement would be to allow the tribunal to rule on jurisdiction but not on the substantive issues in dispute), the arbitration agreement would be ‘inoperative’ for the purposes of Article V(1)(a) and the award would not be capable of enforcement.
There are several issues with the above approach. First, the above approach adopts a relatively broad interpretation of ‘inoperative’. Although such a view seems sensible as it adopts the practical view that the arbitration agreement has, by the actions of one of the parties, become impotent it seems doubtful that such an interpretation is supported by the wording of Article V(1)(a) or by the relatively restrictive approach taken to the Article V grounds more generally.Footnote 59 It seems relatively clear that the arbitration agreement must have been rendered invalid or inoperative once and for all as opposed to on a specific occasion.Footnote 60 This narrow interpretation would also tie in more appropriately with the pro-enforcement bias which exists under the New York Convention and which is respected by the English courts.Footnote 61 As the effect of a Member State court judgment on the substantive issues in dispute would be to stop the arbitral tribunal from deciding on the substantive issues in that particular scenario, it does not seem possible to say that the arbitration agreement would have been rendered inoperative once and for all. The second reason for rejecting the above approach is based on the crucial use of the word ‘may’ in Article V(1)—the grounds for refusal of recognition or enforcement are discretionary. The simple fact that one of the Article V(1) grounds has been prima facie established does not lead to a refusal of recognition or enforcement—although it is fair to say that the discretionFootnote 62 is interpreted restrictively by the courts.Footnote 63 Thus, even if a party was successful in arguing that the arbitration agreement had been rendered ‘inoperative’ by virtue of the Member State judgment on the substantive issues in dispute, a court could still enforce the award under the New York Convention. Indeed, a court taking a practical view of the need to maintain arbitration as a dispute resolution mechanism established by agreement of the parties and the desire to restrain a party from engaging in abusive litigation tactics would seem relatively justified in enforcing the award.
Article V(2)(b) provides that an award may be refused recognition or enforcement where such recognition or enforcement ‘would be contrary to the public policy of [the recognizing or enforcing] country’. As a starting point, it is important to note that although Article V(2)(b) refers to the public policy of the recognizing or enforcing country, the general view held by arbitrating nations and their courts is that ‘public policy’ refers to the narrower concept of international public policy as opposed to domestic public policy.Footnote 64 Although there is no set definition of ‘international public policy’, it is clear from the 2002 Recommendations issued by the International Law Association (‘ILA Recommendations’)Footnote 65 that the concept includes both procedural and substantive public policy. Further, the ILA Recommendations list three areas which are considered to form part of any state's international public policy:
(i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned;
(ii) rules designed to serve the essential political, social or economic interests of the State, these being known as ‘lois de police’ or ‘public policy rules’; and
(iii) the duty of the State to respect its obligations towards other States or international organizations.Footnote 66
The reason why it could be said that public policy under the New York Convention is directly relevant to the question of the enforcement of an arbitral award rendered in a situation where a Member State (not being the court at the seat) has ruled that the arbitration agreement is invalid and has gone on to rule on the substantive issues in dispute is that it could be said that such enforcement or recognition would violate both points (ii) and (iii) of the ILA's Recommendations above. First, as the purpose of the Recast Regulation is to promote the free circulation of judgments in Europe it could be said that this is an essential political and economic interest shared by all the Member States. Thus, to allow an award to cast this aside would be to violate international public policy. Second, point (iii) refers back to the obligations of the recognizing or enforcing state itself. If the state is a Member State, its obligation under the Recast Regulation is to give full effect to judgments of Member States rendered under the Recast Regulation. Allowing an arbitral award rendered ‘in breach’ of the Recast Regulation to be recognized or enforced could be said to detract from the effectiveness of the Member State judgment and to represent a failure by the enforcing Member State to respect its obligations under the Recast Regulation. As a result, recognition or enforcement would have to be refused on this basis.
There are several responses to such an argument. The first is that the very fact that the arbitral award is enforced or recognized does not necessarily mean that the court judgment cannot be. This is especially the case if the court judgment is rendered first. It is wrong, therefore, to say that a Member State court would not be observing its obligations under the Recast Regulation if it recognized or enforced the arbitral award. The second, perhaps stronger, argument against a conclusion that the recognition or enforcement of the award would be contrary to public policy relates to the wording of Recital 12 itself. As mentioned previously, the third paragraph of Recital 12 explicitly places a Member State's obligation to enforce an arbitral award under the New York Convention above those of its obligation to enforce a Member State judgment under the Recast Regulation. It would therefore seem impossible to say that the Member State would not be observing its obligations under the Recast Regulation if the Recast Regulation itself places the recognition and enforcement of arbitral awards at a premium.
2. Domestic awards under English law
The position is not, however, so simple where national law is concerned, in particular, English law. As mentioned previously, an English award may be enforced in one of two ways, either through the summary procedure under section 66 of the Arbitration Act 1996 or by way of an action on the award. Although the grounds of challenge under both methods of enforcement are similar, they are not the same as in the case of an action on the award it is not possible to raise the issue of serious irregularity.Footnote 67 In this section, therefore, both serious irregularity and an appeal on a point of law will be considered to the exclusion of an appeal on a point of jurisdiction. It should, however, be borne in mind that the reasoning in respect of the former ground has no application to an action on the award.
Under section 68, an award may be challenged where the party seeking to resist enforcement can show (i) that one of the serious irregularities listed in section 68(2) exists; and (ii) that this irregularity has caused substantial injustice to one of the parties.Footnote 68 In the situation under consideration, many of the section 68(2) grounds would appear to be irrelevant or inapplicable. In respect of the public policy ground under section 68(2)(g), if the same approach is applied by the courts under section 103(3) of the Arbitration Act 1996 as under section 68(2)(g),Footnote 69 there seems no reason why the arguments made above in respect of the New York Convention would not apply here. In other words, public policy would be of no assistance to the party who had been unsuccessful in the arbitration.
Indeed, it would seem that the only possible ground under section 68(2) which could be applicable would be section 68(2)(a)—failure by the tribunal to comply with its general duty of fairness. Now it has been said that a mere error in the award is not enough to constitute a breach on the part of the tribunal of its general duty of fairness and that section 68(2) was not designed so as to allow a party to challenge the award for what would, in effect, be an error of law.Footnote 70 However, in the case of a tribunal deliberately failing to apply English conflict of laws principles, it is questionable whether the complaint that the unsuccessful party would be making would be one of an error of law. Indeed, it could be argued that this would be a paramount case of the tribunal acting unfairly towards one party by ignoring the rules of law which would have favoured its position. It is, however, difficult to assess which approach the court would take in such a situation. On the one hand, it is arguable that the approach of the courts is to say that if it is possible to formulate a challenge under section 69 then it should be brought under section 69 or not at allFootnote 71 (for example, because the section 69 right has been excluded by the parties). On the other hand, there is clearly a difference between a failure to appreciate the true effects or application of the lawFootnote 72 and a deliberate omission, albeit for reasons of commercial practicality.
What, then, would be the position under section 69? This very much depends upon the institutional rules chosen by the parties or, where the arbitration is ad hoc, the choice of the parties. Several of the most commonly used arbitration rules exclude the right to appeal on a point of law.Footnote 73 In such cases, it would not be possible to rely on section 69, which is not a mandatory section of the Arbitration Act 1996, to dispute the conclusions of the tribunal. However, not all arbitration rules adopt this position with several remaining silent on the issue of an appeal on a point of law.Footnote 74 In these cases, it would appear that it would be open to the unsuccessful party to appeal the decision of the tribunal. Indeed, it would also seem to be the case that the unsuccessful party would be able to satisfy the relatively stringent requirements of section 69(3), the two most difficult elements of this cumulative test being that the determination of the question would substantially affect the rights of one or more of the parties and that the decision of the tribunal on the question is obviously wrong, or that the question is one of general public importance and the decision of the tribunal is at least open to serious doubt. If the tribunal has simply ignored the obvious conclusion of a strict application of English conflict of laws rules, there is simply no way for the other party to argue that the test under section 69 has not been satisfied. In such circumstances, the court hearing the appeal would be bound by the Recast Regulation and, therefore, by the judgment of the Member State court. As a result, the English court would, it would seem, have no choice but to set aside the award under section 69(7)(d).Footnote 75
E. Summary Position
It seems possible, therefore, to interpret Recital 12 in such a way as to allow for arbitration as an institution independent from national (and international) courts to be restored. However, as the position is a relatively complicated one, a short summary is provided here:
1 As the position of a substantive judgment on the merits following a finding by a Member State court (not being the court at the seat of the arbitration) is preserved, it seems to be the case that an anti-suit injunction would not be permissible under the Recast Regulation as this would still interfere with the Member States’ courts’ right to determine their own jurisdiction under the Recast Regulation.
2 Recital 12 reverses the position established in West Tankers Footnote 76 as interpreted by the English Court of Appeal in The Wadi Sudr Footnote 77 that a Member State court judgment on the validity or otherwise of an arbitration agreement is a fully exportable judgment under Brussels I—neither the Member State courts nor the arbitration tribunal need pay any heed to such a judgment under Chapter III of the Recast Regulation.
3 Recital 12 does not seem to reverse the position in respect of a judgment on the merits—as this is subject to Chapter III of the Recast Regulation, such a judgment must be recognized or enforced unless one of the grounds of refusal applies.
4 The New York Convention, to which the Recast Regulation is explicitly stated to be without prejudice, is only of assistance once an arbitral award is in existence—it says nothing of the position where a Member State court judgment has been rendered and the arbitral proceedings are still ongoing and it does not assist the court at the seat.
5 The anti-enforcement injunction, as it does not interfere with another Member State court's right to determine its own jurisdiction, could be used so as to postpone enforcement of a Member State court judgment until a proper determination of the substantive issues in dispute by the arbitral tribunal.
6 Once there is a conflict between a Member State court judgment and an arbitral award, it would be possible for the Member State court asked to enforce the judgment of another Member State court to refuse to do so on the grounds of public policy, pointing to its international obligation to enforce the New York Convention and the fact that Recital 12 specifically places the New York Convention above the Recast Regulation.
7 The position of the court at the seat would, arguably, be the same as that of another court asked to enforce the award as Recital 12 clearly excludes from the scope of the Recast Regulation proceedings relating to the enforcement of the award, the only difference here being that the award itself would be subject to challenge on the particular grounds available under national law.
A point that must be emphasized here is this: where the Member State court judgment precedes that of the arbitration award and no method of postponement of enforcement exists, the Member State asked to enforce the judgment of another Member State will have no choice but to enforce that judgment. The Recast Regulation does not, in and of itself, provide for a method of postponement—the judgment of another Member State is either enforceable or it is not on the basis of one of the grounds identified within the Recast Regulation. If it is enforceable, it is enforceable immediately. No doubt some would say that there is no issue with this—there is no reason to hold arbitration above all else. If a Member State court believes, for example, that the arbitration agreement has been brought into existence by fraudulent means, why should the Member State who would otherwise have jurisdiction not simply declare this and take the jurisdiction it rightfully has? On the other hand, if, as is often the case, one party wishes to escape the contractual bargain they have entered into, using a challenge to the jurisdiction of the tribunal through parallel proceedings in another country as a settlement tactic, why should the Recast Regulation facilitate this? The Commission had envisioned a middle ground that, it is submitted, would have taken account of these considerations—providing the court at the seat with the first bite at the cherry through an exclusive jurisdiction to determine the validity of the arbitration clause.Footnote 78 Indeed, there was a certain honesty in the Commission's proposal which appears to have been missed by the Recast Regulation; namely, that it is impossible to separate the European conflict of laws regime from arbitration. Wherever the seat of the arbitration is within the EU, it is simply impossible to claim that ‘arbitration’ falls wholly outside the European conflicts regime. This is because a Member State court (the court at the seat) is brought, whether reluctantly or not, into the picture and, as a Member State court, it will always have its eye on the Recast Regulation and the interpretation to be given to it by the CJEU.
IV. CONCLUDING REMARKS
Recital 12 appears to be an improvement on the arbitration position that currently exists within Europe—the position of arbitration as an institution chosen by the parties for the resolution of disputes and largely (although not wholly) independent of the courts of a particular state appears to have been restored. However, it seems evident that there has not been a full reversal of the position established by West Tankers Footnote 79—there still seems to be no place for the anti-suit injunction within Europe as ‘mutual trust’ is as important under the Recast Regulation as it was (or, for now, is) under Brussels I. But perhaps this is a good thing—the draconian anti-suit injunction may be said to have no place within the EU, it being better that it is reserved for those nations which fall outside it and whose inhabitants are still treated differently to EU citizens under the Recast Regulation, being subject to the peculiarities of each Member State's conflict of laws rules. What is certainly not a good thing, however, is the position of arbitral tribunals vis-à-vis a substantive determination by a Member State court where that court, not being the court at the seat of the arbitration agreement, has found such an agreement to be null, void, inoperative or incapable of being performed. As the reader has seen from the above, there are one or two relatively complex ways of getting round such a determination but the real question is: should things be so complicated? Probably not. It is questionable why no mention was made of the court at the seat of the arbitrationFootnote 80 as it is this lack of reference that leads to such an absurd result as referred to above.Footnote 81 However, one must accept what one is given and, for better or worse, we are now stuck with Recital 12 of the Recast Regulation. A new hope? Certainly. An easy ride? Certainly not.
