West Tankers v Allianz

DMC/Arbn/11/05

England

West Tankers Inc v Allianz SpA, Generali Assicurazione Generali SpA

English High Court: Field J.; [2011] EWHC 829 (Comm): 6 April 2011

David Bailey QC, instructed by Ince & Co, for the Claimant, West Tankers

Stephen Males QC and Sara Masters, instructed by MFB Solicitors, for the Defendants, Allianz and Generali

ARBITRATION AWARDS: ENFORCEMENT: WHETHER A DECLARATORY AWARD MAY BE ENFORCED UNDER THE ARBITRATION ACT 1996, S.66

Summary

In this case the High Court refused an application to set aside an order granting leave to enforce an English arbitration award in this jurisdiction where proceedings in relation to the same dispute were ongoing in Italy. In doing so, the court sought to protect the primacy of the arbitration award over any inconsistent Italian judgment which might otherwise be recognised and enforced in England.

This note is based on an article written by Guy Pendell and David Bridge of the law firm CMS Cameron McKenna LLP, which first appeared in the firm’s ‘Law-Now’ service on 11 April 2011.

Note

This decision has now been upheld by the Court of Appeal in a judgment reported at [2012] EWCA Civ 27. The Court of Appeal has confirmed the discretionary jurisdiction of the English courts under section 66 of the Arbitration Act 1996 to make a (negative) declaratory judgment on the terms of a (negative) declaratory award made in arbitration. The Court of Appeal's decision was bsed on essentially the same grounds as that of the court of first instance.

The Court of Appeal further referred to and approved the judgment of the Commercial Court in the case of African Fertilizers and Chemicals NIG Ltd (Nigeria) v BD Shipsnavo GmbH & Co Reederei KG (The “Christian D”)Link title:

However, the Court of Appeal did not deal with the further question of whether or not a s.66 declaratory judgment fell within the meaning of a judgment for the purpose of article 36 of the Brussels Regulation (EC Regulation 44/2001). This was because the appellant insurers did not seek to advance that argument at the present stage of the proceedings.

Background

The defendant insurers, Alliance SpA and Generali Assicurazione Generali SpA, applied to set aside an order granting leave to West Tankers to enforce an arbitration award pursuant to section 66(1) of the Arbitration Act 1996 (the “Act”). The award made by the tribunal was a declaration that West Tankers had no liability in respect of the ship “Front Comor” having collided with a jetty at the Italian port of Santa Panagia in Sicily.

The same dispute is the subject of ongoing proceedings in Italy, pursued by the insurers against West Tankers, following the well publicised decision by the European Court of Justice that it is incompatible with EU law for a court of a Member State to make an order restraining a party from commencing or continuing proceedings in the court of another Member State in breach of an arbitration agreement. As a result, the anti-suit injunction that West Tankers had obtained against the insurers was discharged.

The background to the case was that West Tankers had entered into a voyage charterparty with Erg Petroli SpA for the carriage of a cargo of crude oil to the Erg refinery at Santa Panagia in Sicily. That charterparty provided for all disputes to be determined by arbitration in London with English law to apply. When docking at the Erg terminal in August 2000, the vessel came into contact with the pier and mooring dolphins, causing considerable physical damage as well as disruption to the refinery’s business. The refinery’s insurers, the defendants in this case, paid its losses in the amount of some Euros15.6m. The insurers then, in the exercise of their rights of subrogation, commenced suit against West Tankers in the Syracuse courts. It was to stay those proceedings that West Tankers had sought the anti-suit injunction.

Meanwhile, Erg’s claims had been referred to arbitration in London, in accordance with the charter. In those proceedings, West Tankers had denied liability and counterclaimed for a declaration of non-liability against both Erg and its insurers. Erg continued to participate in the reference but the insurers took no part in it.

Having obtained, in November 2008, an arbitration award in its favour, West Tankers was concerned that the insurers might in future obtain an Italian judgment which was inconsistent with that award. The insurers could then seek to have that judgment recognised and enforced in England, pursuant to Chapter III of EC Regulation 44/2001 (relating to the jurisdiction and recognition and enforcement of judgments in civil and commercial matters between EU member states) (the “Regulation”). Those concerns prompted West Tanker’s application to have the award enforced as a judgment, the thinking being that once the award had been converted into a judgment, any subsequent Italian judgment in favour of the insurers would not be recognised in England pursuant to Article 34(3) of the Regulation. Article 34(3) of the Regulation provides that:

“A judgment will 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.”

West Tanker’s application was successful and, by an order dated 15 November 2010 (the “Order”), it was given leave to enforce the arbitration award pursuant to section 66(1) of the Act and judgment was entered against the insurers pursuant to section 66(2) of the Act in the terms of the award. Section 66 of the Act reads as follows:

“(1) An Award made by the 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 to the same effect.

(2) Where leave is given, judgment may be entered in terms of the award.”

The insurers applied to set aside the Order, arguing that an award in purely declaratory terms cannot be “enforced” as a judgment and so the court had no power to make the Order under sections 66(1) and (2) of the Act. The key issue was under what circumstances a court would make an award under sections 66(1) and (2) of the Act to enforce an arbitral award.

Judgment

The court held that the purpose of sections 66(1) and (2) is to provide a means by which the victorious party in an arbitration could obtain the material benefit of the award other than by suing on it. Where the victorious party’s objective in obtaining an order under sections 66(1) and (2) was to establish the primacy of a declaratory award over an inconsistent judgment, the court would have jurisdiction to make the Order. West Tankers’ objective was exactly that and it had a real prospect of establishing the primacy of the award over any future Italian judgment. Accordingly, the court had jurisdiction to make the Order and the insurers’ application was dismissed.

Comment

This decision is likely to be welcomed by users of arbitration. Indeed, there is little point in arbitrating if the final award cannot be enforced and used to prevent the recognition of conflicting foreign judgments in this jurisdiction. The fact that the English courts are prepared to support the primacy of English arbitration awards may go some way to easing the frustration of a party who agrees to arbitrate but is then dragged into prolonged and uncertain litigation in another Member State.