19 December 2011
Under European law, the recognition and enforcement of judicial decisions by EU Member States is governed by Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Reg (EC) 44/2001 or the Regulation).
However, according to Article 1 II (d) of Reg (EC) 44/2001, the Regulation shall not apply to arbitration. It therefore neither applies to arbitral tribunals nor to state courts in cases in which the courts have to render decisions relating to arbitral proceedings or arbitral awards.1 According to the European Court of Justice (ECJ), this is the case even if the existence or validity of an arbitration agreement has to be examined in the lawsuit as a preliminary question. That is because the applicability of Reg (EC) 44/2001 is determined by the actual matter in dispute (e.g., nomination of an arbitrator) irrespective of which preliminary questions might become decisive. Thus, according to the ECJ, the exclusion of Article 1 II (d) of Reg (EC) 44/2001 has to be interpreted widely and is not limited to arbitration proceedings as such, but also covers court proceedings which are initiated in support of arbitral proceedings.
This also means that Reg (EC) 44/2001 is not relevant for the proceedings of recognition and declaration of enforceability of foreign arbitral awards within the European Union. Rather, the procedure to enforce a foreign arbitral award is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (New York Convention), which has been ratified by all Member States.
No Recognition and Enforcement of Court Decisions Incorporating Arbitral Awards under Reg (EC) 44/2001
The aforementioned exclusion also applies to court decisions that incorporate arbitral awards pursuant to the doctrine of merger in Anglo-American jurisdictions. A court decision ordering an obligation of the defendant by way of incorporation of the arbitral award cannot be recognized and declared enforceable in another Member State under Reg (EC) 44/2001.2 The court’s decision declaring the arbitral award enforceable has effect only within the territory of the deciding court’s state. Hence, the claimant should seek a declaration of enforceability of the award in the Member State chosen for intent to execute the award.3
Recognition and Enforcement of Court Decisions Disregarding an Arbitration Clause
Another enforcement issue arising under European law is the question whether a judgment of a foreign court is enforceable under Reg (EC) 44/2001 if the court unlawfully disregarded the existence of an arbitration agreement and, therefore, had no jurisdiction to decide on the merits of the case.4 Whether such a decision can be enforced according to the rules of Reg (EC) 44/2001 has been much debated since the revision of the Regulation in 1978. The predominant view (which is contrary to the view formerly taken by the United Kingdom), is that such a decision must be recognized and declared enforceable in accordance with Reg (EC) 44/2001. This outcome is justified by the fact that even if a valid arbitration agreement exists, the court’s decision in dispute has been rendered in a civil and commercial matter. In fact it has no connection to arbitration.
Protection against the disregarding of an arbitration agreement must be sought before the first court and not before the second court that is concerned with the recognition of the judgment. In addition, Articles 34 and 35 of Reg (EC) 44/2001 stipulate the exclusive reasons for denial of recognition. These provisions do not provide for a general examination of the question whether or not the first court had jurisdiction to decide the case. Thus, a Member State court cannot deny recognition of a foreign court’s decision on the grounds that the first court has disregarded a valid arbitration agreement.
Defense Against the Breach of Arbitration Agreements
In connection with the enforcement of arbitration agreements, the question arises about how a party can defend a violation of an arbitration agreement in order to prevent the aforementioned danger of a court decision disregarding an arbitration clause. The ECJ recently ruled that anti-suit injunctions brought in order to enforce an arbitration agreement are incompatible with community law.
In its Turner judgment,5 the ECJ had already ruled that anti-suit injunctions violated the principles of European law.
In its landmark decision in the West Tankers case, C-185/07,6 the ECJ had to decide if an anti-suit injunction also infringes the principles of Reg (EC) 44/2001 when the injunction relates to arbitration-related court proceedings.
The ECJ concluded that the Member States must not grant anti-suit injunctions where litigation proceedings have been brought before the court of another Member State in violation of an arbitration agreement. The ECJ determined that if, because of the subject matter of the dispute, those proceedings come within the scope of Reg (EC) 44/2001 a preliminary issue concerning the applicability of an arbitration agreement also comes within its scope of application.
Anti-suit injunctions are incompatible with the principles of the Regulation because they interfere in the powers of the courts to decide on their jurisdiction. The ECJ argued that it would be contrary to the general principle of the Regulation that every court seized itself determines whether it has jurisdiction to resolve the dispute before it.
As a consequence of the West Tankers ruling, European law does not permit the courts—including the court in the seat of the arbitration—to grant anti-suit injunctions to protect arbitration agreements from litigation in the court of another EU Member State. Therefore, if a party brings a lawsuit before a Member State court in violation of an arbitration agreement, the only defense might be an objection to the suit based on the existence of an agreement to submit any dispute to an arbitral tribunal.
In light of West Tankers, an anti-suit injunction will only be possible if the court asked to grant the injunction is not located in a Reg (EC) 44/2001 Member State. The West Tankers ruling thus permits a party to obstruct an arbitration by contesting the clause in a jurisdiction it perceives as favorable, whether because of local law or, for example, the slow speed of its judicial processes. Nevertheless, it remains the law in the EU unless and until Reg (EC) 44/2001 is amended.
Initiative to Amend EU Law
When West Tankers was issued, discussions about a reform of Reg (EC) 44/2001 had already begun. In the so called Heidelberg Report,7 which was prepared for the European Commission, the authors suggested several amendments to the Regulation. The report also dealt with the scope of applicability of the Regulation and in particular with respect to the arbitration exclusion. The authors of the report suggested that this exclusion be lifted. They recommended that the courts at the place of arbitration have exclusive jurisdiction for court proceedings relating to arbitral matters. In addition, they recommended that the commencement of a court proceeding at the place of arbitration dealing with the existence, the validity and/or the scope of an arbitration agreement should result in a mandatory stay of any proceedings dealing with this issue pending in a court in another Member State.
Subsequent to the Heidelberg Report, the European Commission issued a report and the “Green Paper on the Review of the Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters” on 21 April 2009.8 In its Green Paper the Commission considered a partial deletion of the exclusion of arbitration from the scope of the Regulation.
In its Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters of 14 December 2010,9 the Commission finally proposed a partial deletion of the exclusion of arbitration from the scope of the Regulation. The proposal includes a specific rule on the relationship between arbitration and court proceedings. It would oblige a court seized of a dispute to stay proceedings if (i) its jurisdiction is contested on the basis of an arbitration agreement and an arbitral tribunal has been seized of the case, or (ii) court proceedings relating to the arbitration agreement have been commenced in the member state of the seat of the arbitration. The Commission argues that this modification will enhance the effectiveness of arbitration agreements in Europe, prevent parallel court and arbitration proceedings, and eliminate the incentive for abusive litigation tactics.
As a next step, the European Parliament and the Council of the European Union will have to agree to the proposed amendments. If the amendments of the Commission become effective, the aforementioned total exclusion of arbitration from the Regulation will lapse and the Regulation will be applicable to prevent a party trying to undermine an arbitration agreement.
1. See the leading decision of the European Court of Justice, judgment of 25 July 1991, Case No. C-190/89, Rich, Collection of Judgments 1991, I-3855.
2. Report on the Convention on the Association of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters and to the Protocol on its interpretation by the Court of Justice dated 9 October 1978, by Professor Schlosser, so called “Schlosser Report,” page 92.
3. See Kraayvanger/Hilgard, “Must a foreign arbitral award be challenged in its state of origin to preserve objections in domestic recognition and enforcement proceedings?” IBA – Arbitration Newsletter, March 2009, 54 et seq.
4. See Kraayvanger/Hilgard, "US Arbitration Award unenforceable against German Franchisee," IBA Arbitration Newsletter Sept. 2008, 26 et seq.
5. ECJ, judgment of 27 April 2004, Case No. C-159/02, Turner, IPRax 2004, 425.
6. ECJ, judgment of 10 February 2009, Case No. C-185/07, Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) and Generali Assicurazioni Generali SpA v. West Tankers Inc., West Tankers. See also Hilgard et al, “Anti-Suit Injunctions in Defence of Arbitration,” Bloomberg European Law Journal 2008, 41 et seq.
7. See Hess/Pfeiffer/Schlosser, The Brussels regulation 44/2001 – Application and Enforcement, 2008, also available at www.europa.eu.