National Navigation v Endesa
English Court of Appeal
National Navigation Co v Endesa Generacion SA (The “Wadi Sudr”) English Court of Appeal: Waller, Carnwath and Moore-Bick LJJ:  EWCA Civ 1397,  1 Lloyd’s Rep 193: 17 December 2009
Vasanti Selvaratnam QC and Tom Whitehead, instructed by Messrs Ince & Co, for the Respondent, National Navigation
Richard Lord QC and Richard Blakeley, instructed by Messrs Thomas Cooper, for the Appellant, Endesa
CONFLICT OF LAWS: BILL OF LADING: SPANISH COURT JUDGMENT THAT ARBITRATION CLAUSE NOT INCORPORATED INTO BILL OF LADING: WHETHER SPANISH COURT JUDGMENT FELL WITHIN ARBITRATION EXCEPTION IN ARTICLE 1(2)(D) OF EC REGULATION 44/2001: WHETHER RECOGNITION SHOULD BE REFUSED IN ENGLISH ARBITRATION PROCEEDINGS: WHETHER CONTRARY TO PUBLIC POLICY
In an action for damages for breach of a bill of lading, a Spanish court held, as a preliminary issue, that no arbitration clause was incorporated into that bill. The English Court of Appeal held that the Spanish judgment fell within the scope of the EC Regulation 44/2001 as the principal subject-matter of the proceedings, that is, a contractual or commercial dispute, fell within the Regulation. It was irrelevant that, when viewed in isolation, the issue of the incorporation of an arbitration clause fell within the arbitration exception of the Regulation. Recognition should thus be given to the Spanish judgment in all English proceedings, regardless whether or not the latter related to arbitration. Further, the Spanish judgment was not contrary to public policy merely because English law would reach a different conclusion on the issue of incorporation of arbitration clause.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and pupil barrister in Hong Kong.
The present case arose from a bill of lading dispute between Endesa and National Navigation Co (NNC).
NNC were the owners of the vessel “Wadi Sudr”. Endesa, as consignees of a bill of lading, maintained that they had a claim for damages against NNC for wrongful discharge of cargo. Thus, in January 2008, they commenced proceedings in the Mercantile Court of Almeria in Spain to arrest the vessel.
Later on the same day, NNC started an action (Folio 64) in the Commercial Court in London (“the Commercial Court proceedings”), seeking a declaration of non-liability under the bill of lading. They also asserted that, under the bill of lading, jurisdiction was agreed to be London. No mention was made of any arbitration clause in the bill at that time. However, two months later, NNC challenged the jurisdiction of the Almeria court on the basis that action had commenced in London and that the dispute was subject to arbitration in London because an arbitration clause was incorporated from an underlying charterparty into the bill of lading in question. An application was also made to the Almeria court for a stay of its proceedings.
Endesa gave notice disputing the jurisdiction of the London court.
In July 2008, NNC commenced arbitration in London. They also commenced another set of actions (Folio 667) (“the Arbitration proceedings”), seeking, as an alternative to the Commercial Court proceedings, a) a declaration that the arbitration clause was validly incorporated into the bill of lading and b) an injunction restraining Endesa from proceeding with their claim under the bill of lading other than by way of arbitration in London.
In September 2008, the Almeria court handed down its judgment. It held that under Spanish law, the arbitration clause was not incorporated into the bill of lading; and that in any event, NNC had waived reliance on the clause by commencing the Commercial Court proceedings. However, it granted a stay pursuant to Article 27 of Council Regulation (EC) 44/2001 (“the Regulation”), until the Commercial Court ruled as to whether it was competent and thus seised of the action between NNC and Endesa. NNC appealed against the Almeria court ruling; but in a second judgment delivered in December 2008, the Almeria court affirmed its previous ruling.
In the meantime, NNC’s proceedings were running before English courts. The European Court of Justice delivered its judgment in The Front Comor  1 Lloyd’s Rep 143 just after the trial judge, Gloster J, circulated a draft of her judgment. This precluded her from granting NNC an injunction to prevent Endesa from continuing proceedings other than by London arbitration.
In her final judgment  1 Lloyd’s Rep 666, Gloster J held that the judgment of the Almeria court was a judgment within the Regulation; but it was not binding in the Arbitration proceedings, as opposed to the Commercial Court proceedings, because the former were excluded by Article 1(2)(d) of the Regulation. She was of the view that, even if the Almeria court judgment was within the Regulation, the English court was nevertheless entitled to disregard it, because it was manifestly contrary to UK public policy in not recognising a validly incorporated arbitration clause. A declaration that as a matter of English law, the arbitration clause was incorporated into the bill of lading was thus granted.
NNC applied for leave from the Court of Appeal to appeal against Gloster J’s dismissal of the Commercial Court action (that is, the ruling that the Almeria court judgment fell within the Regulation). Endesa appealed against the ruling that the arbitration clause was incorporated into the bill of lading.
The Court of Appeal allowed Endesa’s appeal, but refused NNC leave to appeal. Waller and Moore-Bick LJJ delivered two separate judgments, and Carnwath LJ agreed with both of them.
Firstly, the Court rejected NNC’s argument that the Almeria court judgment was conditional in the sense that the Almeria court would only ultimately decide on the question of incorporation of the arbitration clause if English court held it was not first seised. The Court was of the view that the Almeria court judgment was clearly a decision on the merits that no arbitration clause was incorporated into the bill of lading. This was not affected by the Almeria court’s stay of its proceedings.
Secondly, after the decision of the ECJ in The Front Comor, it was clear that whether a judgment from courts of other EU countries fell within the Regulation depended on the nature of the principal subject-matter of the proceedings, but not the individual issues which were decided. If the principal subject-matter of a case fell outside the scope of the Regulation, any proceedings relating to a preliminary issue of that same case would not be governed by the Regulation. This was so even if the subject-matter of that preliminary issue would fall within it, if viewed in isolation.
Thus, as the principal subject-matter of the present case concerned Endesa’s attempt to recover damages from NNC for breach of the bill of lading, the Almeria court judgment fell within the scope of the Regulation (Article 33(1) ). This was so even though the issue decided in that judgment, namely incorporation of an arbitration clause into the bill of lading, seemed to fall within the arbitration exception under Article 1(2)(d) of the Regulation when viewed in isolation.
The Court of Appeal also rejected Gloster J’s argument that recognition should only be given to the Almeria court judgment in the Commercial Court proceedings, but not in the Arbitration proceedings because the latter fell within the arbitration exception in Article 1(2)(d). Such proposition was not supported by authorities, and there was nothing in Chapter III of the Regulation which suggested that recognition of a judgment depended on the nature of the proceedings currently before the court. The Court also commented obiter that, although the Regulation did not apply to arbitral tribunals and that arbitrators were not thus bound to recognise judgments of the courts of Member States of the EU, foreign judgments could still affect arbitration proceedings because they could give rise to estoppel by res judicata .
Finally, the Court overturned Gloster J’s holding that the Almeria court judgment should not be recognised on public policy grounds. At common law, it was not contrary to public policy to recognise a judgment given in proceedings which, when viewed under English law, had been pursued in contravention of a valid arbitration agreement. Applying the public policy test laid down in Krombach v Bamberski Case C-116/02  ECR 1-01935, there was nothing in the Almeria court judgment which was inconsistent with a fundamental principle of the legal order of the enforcing Member State.