Greater Powers for EU Anti-Suit Relief Continue to Vest in Arbitral, Not Curial, Hands
When courts compel parties to arbitration, i.e. upholding the underlying arbitral agreement, it is considered a routine judicial response. When courts prohibit parties from pursuing proceedings before other national courts, i.e. granting an anti-suit injunction, it is considered an exceptional judicial device. Worse, within the EU, it is considered incompatible with the Brussels I Regulation (EU Regulation 44/2001) ("EU Regulation") for a court in an EU Member State to grant an anti-suit injunction. What about anti-suit injunctions issued by arbitral tribunals? Following the recent European Court of Justice ("ECJ") judgment in Gazprom,[i] arbitral tribunals that have their seat within the European Union are allowed to grant anti-suit relief restraining actions before other EU Member State courts. This is a major and welcome development for the international arbitration community.
For those involved in international arbitration, particularly with EU-seated tribunals, there are three components to this judgment of principal interest.
First, the ECJ considered whether the EU Regulation must be interpreted as precluding an EU Member State court from recognising and enforcing, or from refusing to recognise and enforce, an arbitral award prohibiting a party from bringing actions before that Member State's courts.
Second, in resolving any dispute concerning the recognition or enforceability of arbitral awards, the ECJ's decision delivers a ringing endorsement of the applicable national arbitration law and the ultimate primacy to which the New York Convention[ii] is afforded.
Third, whilst its damaging reach continues to be heavily pruned, the ECJ's controversial decision in West Tankers[iii] has still yet to be reversed.
Common law states have long exercised jurisdiction, by way of anti-suit injunctive relief (itself a creature of equity), to restrain parties from instituting or continuing foreign court proceedings. In relatively recent times, anti-suit injunction powers have been significantly curbed by EU law, primarily in the shape of the EU Regulation, which contains extensive jurisdiction, recognition and enforcement rules to be applied among EU Member States.
Keen on preserving the mutual trust and EU comity bases upon which the EU Regulation was enacted, the ECJ has on several occasions ruled that anti-suit injunctions against intra-EU court proceedings are irreconcilable with the EU Regulation.[iv] Such rulings have drawn heavy criticism from the arbitral community, not least because they spur disputants to bring so-called "torpedo actions" whereby proceedings are commenced in one EU court to delay, if not altogether nullify, the relevant arbitral process or curial proceedings in the court expressly selected by the parties.[v]
Since Article 1(2)(d)[vi] of the EU Regulation expressly excludes arbitration from its scope of application, it was widely thought that anti-suit injunctions, in the context of preserving arbitral proceedings, would be spared. The ECJ had other ideas. In West Tankers,[vii] the ECJ determined that "a preliminary issue concerning the applicability of an arbitration agreement, including in particular its validity, also comes within the scope of application of the Brussels I Regulation". In other words, those principles of trust and comity between EU Member States necessarily implied that EU Member State courts should trust that other Members' courts will properly determine their jurisdiction—affirmatively or negatively—even in the context of arbitration. In effect, intra-EU anti-suit injunctions, including as to the preservation of arbitral proceedings, were pronounced dead. Unsurprisingly, the ECJ's decision has since caused considerable gnashing of teeth among many arbitral jurists.
In the wake of West Tankers, EU law remained unclear on one key issue. Namely, would anti-suit awards issued by EU-seated arbitral tribunals suffer the same fate as intra-EU curial anti-suit injunctions within the West Tankers reach? The authority of an arbitral tribunal to issue anti-suit awards stems from the arbitration agreement itself, as a means of protection against breaches of that agreement. As long as the contracting parties intend that their disputes be resolved exclusively through arbitration, jurisdiction vests in the arbitral tribunal to issue anti-suit awards.
A further EU Regulation 1215/2012 (the "Recast Regulation") was enacted to deliver some clarity to the arbitration exception contained in the EU Regulation. Materially, Recital 12 of the Recast Regulation expressly excludes from the ambit of the EU Regulation the decisions of EU Member State courts on the validity and enforcement of an arbitration agreement, thus potentially drawing the sting from the stifling effects of West Tankers. Less helpfully, Recital 12 also provides that if an EU Member State court decides that the arbitration agreement is invalid, then its decision on the merits of the underlying case would be within the scope of the EU Regulation, thus, arguably, revalidating West Tankers.[viii]
Gazprom concerns an award rendered by a Stockholm-seated arbitral tribunal, which issued an anti-suit injunction to restrain concurrent court proceedings brought in Lithuania by one of the parties to the arbitration agreement. In brief, the material facts are:
In 2004, Gazprom OAO ("Gazprom"), E.ON Ruhrgas International GmbH and the Republic of Lithuania (through the Ministry of Energy) ("Ministry"), collectively referred to as the "Company", together entered into a shareholders' agreement ("SHA"). The SHA, itself subject to Lithuanian law, contained an arbitration agreement governed by Swedish law.
For reasons outside the scope of this Commentary, in 2011 the Ministry filed an application for Investigation Proceedings (pursuant to Article 2.124 of the Lithuanian Civil Code) against the Company before the Vilnius Regional Court in Lithuania.
Under the terms of the SHA, a dispute arose between the Ministry and Gazprom in respect of whether, by initiating the Investigation Proceedings before the Lithuanian court, the Ministry had breached the arbitration agreement contained in the SHA
Accordingly, Gazprom subsequently filed a request for arbitration under the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce ("SCC").[ix] Gazprom requested the arbitral tribunal[x] to order the Ministry to discontinue the court proceedings in Lithuania and refrain from any further actions in the Lithuanian courts in violation of the arbitration agreement.[xi]
It appears from the final award,[xii] issued in July 2012, that the arbitral tribunal was not requested to make any determinations concerning the underlying matters giving rise to the Investigation Proceedings brought by the Ministry. Simply, it was tasked with adjudicating on the Ministry's entitlement to bring those proceedings in light of the SHA arbitral agreement.
By that final award, the arbitral tribunal declared that the Ministry had partially breached the arbitration agreement contained in the SHA and ordered the Ministry to withdraw or limit some of the claims pressed in the court proceedings.
The first instance Vilnius Regional Court, in September 2012, ruled that the Ministry's Investigation Proceedings action fell within its jurisdiction and could not be the subject of arbitration under Lithuanian law. Gazprom opted therefore to seek recognition and enforcement of the award (applying the New York Convention) before the Lithuanian Court of Appeal.
Gazprom's application was met with refusal, the Court of Appeal deciding that the arbitral tribunal had no authority to adjudicate on a question already before the Vilnius first instance court. In particular, the court cited two bases for its decision:
- The disputes referred to in Article 2.124 of the Lithuanian Civil Code could not be settled by arbitration, thus entitling the court to refuse to recognise and enforce the award on the basis of New York Convention Article V(2)(a).
- By constraining the Lithuanian State's capacity to bring Lithuanian court proceedings and denying that court jurisdiction to rule on its own jurisdiction, the arbitral award contravened the principle of judicial authorities' independence enshrined in Article 109(2) of the Lithuanian Convention. As the arbitral award contravened Lithuanian public policy, the court's entitlement to refuse to recognise and enforce the award was grounded in New York Convention Article V(2)(b).
Gazprom appealed that decision to the Supreme Court of Lithuania. The Lithuanian Supreme Court, in October 2013, referred the matter to the ECJ for a preliminary ruling on whether enforcement could be refused because the arbitral award restricted the Lithuanian court's ability to determine its own jurisdiction. Specifically, in the referring court's view, an arbitral award of that nature could upset the practical effect of the EU Regulation by preventing the national court from deciding whether it has jurisdiction to hear a case falling within the EU Regulation ambit.
The Advocate General's Opinion
In December 2014, Advocate General Wathelet delivered his opinion on the case.[xiii] Citing the Article 1(2)(d) exclusion, he opined that there was no requirement under the EU Regulation that compelled the EU Member State court to refuse to recognise (and enforce) the arbitral award. Such questions were to be answered by combined reference to the national arbitration law applicable in the relevant EU State of enforcement and, of course, to the provisions of the New York Convention. That much was to be expected.
Less expected was the Advocate General's opinion that the instant case warranted a retroactive application of the Recast Regulation (despite it applying only to EU court proceedings commenced on or after 10 in January 2015) because it materially informs how the arbitration exclusion ought to be interpreted and how it was always intended to operate. Put differently, in his opinion, it would provide "a retroactive interpretative law" in relation to the now repealed and replaced EU Regulation. Applying Recital 12 of the Recast Regulation not only gives proper effect to anti-suit awards issued by EU-seated arbitral tribunals but it also validates anti-suit injunctions in support of arbitration issued by EU Member State courts restraining proceedings elsewhere in the EU.
Consequently, the Advocate General further argued, the ECJ had decided West Tankers wrongly. Had that particular case been decided through the prism of the Recital 12 provisions, then the inevitable conclusion would be drawn that the anti-suit injunctive relief ought to have been granted (as there existed no incompatibility with the EU Regulation). Accordingly, the ECJ ought to regard Gazprom as an opportunity to revisit that decision.
The ECJ's Decision
In light of the Advocate General's piquant opinion, there was hopeful speculation among the arbitral community that the ECJ would now be provoked into overturning West Tankers. Those hopes were to be dashed, however. In reaching its decision, the ECJ trod a much narrower path than did the Advocate General, effectively side-stepping his calls to revisit West Tankers. In fact, the ECJ made no reference to his opinion.
The ECJ observed that this case concerned anti-suit injunctive relief through an arbitral award, rather than the intra-EU curial anti-suit injunctions, the subject of West Tankers. So in that sense, West Tankers was factually distinguishable. Further, in contrast to a court-ordered injunction, any failure by the Ministry to comply with the arbitral award would not result in state sanctions, so the legal effects of the respective injunctions provided additional reasoning to distinguish West Tankers. The ECJ also noted that arbitral tribunals do not owe one another the same "mutual trust" (as accorded by EU Member States to their respective legal systems and judicial institutions) which finds expression in harmonisation of the rules on determining court jurisdiction.
Instead, the chief focal point for the ECJ's decision was that the anti-suit orders were issued by an arbitral tribunal, not an EU Member State court, thus falling outside the EU Regulation's ambit. The effect of the anti-suit orders therefore had to be determined in accordance with the relevant arbitration law and the New York Convention. In forming those views, the ECJ had applied a textual interpretation of the EU Regulation.
Although the ECJ did not follow the Advocate General's invitation to revisit West Tankers, its decision in Gazprom is to be welcomed nonetheless.
First, the decision helpfully clarifies that EU-seated arbitral tribunals ought not to concern themselves with the EU Regulation when issuing anti-suit orders. In that regard, EU-seated arbitral tribunals (arguably) continue to enjoy greater powers to grant anti-suit remedies than those conferred upon EU Member State courts. Even so, the view of arbitral tribunals as whether to exercise such powers varies, as does the practice of whether to issue such injunctions on an interim basis (including by way of a simple procedural order) or a final basis.[xiv]
Secondly, on any questions concerning the recognition and enforceability of arbitral awards, it directs EU Member State courts to the applicable national arbitration law and the New York Convention provisions. By so doing, any potential mischief that lurks at the intersection between the EU Regulation and international arbitration law is quelled.
Doubtless these aspects of the Gazprom judgment augur well for the arbitral community. However, further patience will need to be exercised in awaiting a propitious case that enables the ECJ to squarely subject curial anti-suit injunctions to the Recast Regulation provisions.
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[i] ECJ Case C-536/13 – Gazprom OAO (interested party the Republic of Lithuania); dated 13 May 2015. The ECJ's judgment is available on its website, case reference C-536/13.
[ii] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
[iii] ECJ Case C-185/07 – Allianz SpA and Others v West Tankers Inc; dated 7 February 2009.
[iv] See, for instance, ECJ Cases C-116/02 – Erich Gasser GmbH v MISAT Srl and C-159/02 – Gregory Paul Turner v Felix Fareed Ismail Grovit and Others.
[v] Invariably, the court contemplated in an exclusive jurisdiction clause.
[vi] Which states "shall not apply to arbitration".
[vii] ECJ Case C-185/07 – Allianz SpA and Others v West Tankers Inc; dated 7 February 2009.
[viii] Recital 12 of the Recast Regulation provides that:
"This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
"A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. [our emphasis]
"On the other hand, where a court of a Member State, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not preclude that court's judgment on the substance of the matter from being recognised or, as the case may be, enforced in accordance with this Regulation. This 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 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 ("the 1958 New York Convention"), which takes precedence over this Regulation.
"This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award."
[ix] The SCC registered the request as Arbitration No. V (125/2011). E.ON Ruhrgas does not appear to have been party to the arbitral proceedings.
[x] Comprising Sophie Nappert (co-arbitrator on behalf of Gazprom), Sophie Lamb (co-arbitrator on behalf of the Ministry) and Yves Derains as chairman of the tribunal. All three arbitrators were appointed by the SCC, as provided for in the arbitration clause.
[xi] Gazprom also sought damages and costs, as arising from the Ministry's alleged breach of the arbitration agreement.
[xiv] For a related discussion, see Webster/Bühler "Handbook of ICC Arbitration" (Sweet & Maxwell 3rd Edition 2014), paras. 22-40 to 22-44.