InNational Navigation Co v. Endesa Generacion SA [2009] EWCA Civ 1397, [2009] 1 Lloyd's Rep. 666 the Court of Appeal addressed a question of considerable practical importance. Is an English court precluded from determining whether an English arbitration clause is incorporated in a contract if a court in another EU state has already decided the matter?
When the vessel Wadi Sudr failed to discharge its cargo of coal as stipulated in the bill of lading, the Spanish cargo owners (Endesa) claimed damages in a Spanish court. The Egyptian shipowners (NNC) sought a stay of the Spanish proceedings on the basis that a London arbitration clause, derived from the voyage charterparty, was incorporated in the bill of lading. Applying Spanish law, the Spanish court ruled that no such clause was incorporated. NNC then sought a declaration from the Commercial Court in London that the clause was incorporated under English law. Whether the English court could reconsider the status of the clause depended on whether it was bound to recognise the Spanish court's ruling as a Regulation judgment pursuant to Article 33(1) of Regulation 44/2001 (the Brussels I Regulation). If so, Article 33 would oust section 32(3) of the Civil Jurisdiction and Judgments Act 1982, which frees an English court to ignore a foreign decision concerning the status of an arbitration agreement in cases outside the Regulation, and in doing so suspends the principle of issue estoppel.
In holding that Article 33 applied, the Court of Appeal considered three questions. First, was the Spanish ruling within the arbitration exception to the Regulation, thereby disengaging Article 33, arbitration being excluded from the Regulation by Article 1(2)(d)? Secondly, if the ruling was a Regulation judgment, could the English court nonetheless disregard it on the basis that the English proceedings in which recognition was sought were themselves outside the Regulation's scope, being concerned solely with arbitration? Thirdly, was the Spanish ruling “manifestly contrary to public policy” pursuant to Article 34(1) of the Regulation, because it was obtained in breach of an arbitration agreement which was effective under English law?
The Court of Appeal held that, although the Spanish court's ruling concerned an arbitration clause, it was ancillary to proceedings the substance of which (NNC's liability) was within the Regulation. Applying Allianz SpA v. West Tankers Inc (C-185/07, [2009] 1 A.C. 1138, noted [2009] 68 C.L.J. 278), the test is whether the “essential nature of the substantive dispute” is within the Regulation, not the particular decision for which recognition is sought. It was irrelevant that the English proceedings concerned solely the status of the arbitration clause. Nor was it legitimate to challenge the ruling's status on public policy grounds.
These conclusions are unsurprising. It cannot infringe public policy to ask a foreign court a question if an English court is obliged to recognise its answer. Although conceptually the issues are distinct, consistency also requires that whether recognition of a judgment is subject to the Regulation depends on whether the Regulation governs the proceedings in which it was obtained. Certainly, Endesa reflects the assumption that the courts of the country named in a jurisdiction or arbitration agreement have no unique claim to assess its status (an assumption famously exemplified in C-116/02 Erich Gasser Srl v. MISAT [2003] ECR I-14693). It also promotes the Regulation's overarching objective by avoiding inconsistent judgments in different Member States, here concerning the status of an arbitration clause. But Endesa is at odds with two assumptions widely shared in the arbitration community. One is that arbitration is properly a matter for national law, which is more likely than the Regulation to respect party autonomy and the de-regulated resolution of disputes, the twin lodestars of arbitration. The other is that the courts at the alleged seat may always police the arbitration agreement, the assumption underlying section 32 of the 1982 Act.
Endesa also highlights the difficulties inherent in the West Tankers approach, difficulties which the Court of Appeal recognised but felt helpless to avert. The courts at the seat of arbitration are deprived of any role in determining the status of an arbitration clause if pre-empted by the decision of another court that the agreement is ineffective. Conversely, a court in which substantive proceedings have begun may disregard any decision by the courts at the seat of arbitration upholding the agreement. Compounding the problem, this depends (however irrationally) on the context in which the foreign ruling is made. In Endesa the ruling was ancillary to a substantive dispute in Spain concerning the shipowner's liability, and so subject to the Regulation. But, had the Spanish proceedings concerned merely whether the arbitration clause was incorporated, the entire proceedings would have concerned arbitration, thus avoiding the Regulation, and allowing the English court to ignore the Spanish court's decision.
Endesa is likely to generate unnecessary, tactical proceedings in the courts of Member States. In addition to initiating arbitral proceedings, parties wishing to arbitrate may feel compelled to preserve their position by seeking a pre-emptive declaration that the agreement is valid from the courts at the arbitral seat – in English law pursuant to section 32 of the Arbitration Act 1996. Again, those seeking to evade such agreements will doubtless seek in future to have the agreement's ineffectiveness confirmed elsewhere, being careful to append such relief to a substantive claim, to ensure compliance with the West Tankers test. Such manoeuvres will only increase the parties' costs, defeat the objective of private, autonomous dispute-resolution that arbitration is intended to serve, and diminish the attractiveness of arbitration in Member States.
Endesa illustrates a recurring theme in cases subject to the Regulation. Inconsistent judgments are successfully avoided, but at the cost of promoting tactical litigation, and confounding legitimate expectations. Encouragingly, however, the decision may not survive the current review of the Regulation (initiated by the Commission's Report and Green Paper of April 2009), a result which the Court of Appeal would doubtless applaud. The European Parliament's rapporteur has expressed the bold – but possibly fragile – preliminary view that judgments concerning the status of arbitration agreements should be excluded from the Regulation (Zwiefka, Working Document, 2.12.2009, 4), with the effect that their recognition in other courts is no longer required, and the consequences of Endesa are avoided.
