Preparing for Brussels I recast—arbitration

With the recast Brussels I Regulation set to apply from January 2015, what do lawyers need to be aware of and prepare for when dealing with matters under the new regulation? Nigel Rawding, a partner at Freshfields Bruckhaus Deringer LLP and head of the firm’s London-based international arbitration practice, and Liz Snodgrass, counsel in the firm’s international arbitration group based in London, highlight the likely effects and challenges the new regulation will pose for arbitration.

How does the recast Brussels I Regulation affect arbitration?

Nigel Rawding (NR): The recast Brussels I Regulation (Regulation (EU) 1215/2012) reinforces the exclusion of arbitration from the scope of EU regulation of the relationship between member state courts, confirming that the enforcement of both arbitration agreements and arbitration awards is governed by the New York Convention and not the Regulation. In this respect, the recast Brussels I Regulation reflects a strong endorsement by EU policy-makers and EU member state governments of the existing regime for arbitration, governed by the 1958 New York Convention. Recital 12 also recognises some scope for courts at the seat of the arbitration to support the arbitral process notwithstanding that the underlying dispute may have been submitted to the courts of another member state. It does not, however, appear to authorise member state courts to issue anti-suit injunctions to restrain proceedings brought in other member state courts in breach of arbitration agreements.

What are the key points in recital 12?

Liz Snodgrass (LS): Recital 12 elaborates on what it means for the Regulation not to apply to arbitration. It confirms, in particular, that decisions concerning the existence, validity or scope of arbitration agreements fall outside the Brussels regime, whether that decision is incidental to resolution of an underlying substantive dispute or is the principal issue in the proceedings. It also clarifies that the Regulation does not apply to proceedings relating to:

• the establishment of an arbitral tribunal (presumably also including any challenges to arbitrators heard by national courts)
• the powers of arbitrators
• the conduct of or any procedural aspects of an arbitration, and
• any post-award proceedings concerning either challenge/annulment or recognition and enforcement of an arbitral award

Recital 12 goes on to confirm that a substantive judgment of a member state court—that is, a ruling on the underlying merits of a dispute—will be subject to recognition and enforcement by other member state courts pursuant to the Regulation even when one of the parties had argued that an arbitration agreement applied to the dispute and that argument was rejected by the member state court rendering the judgment. Recital 12 further states that this is ‘without prejudice’ to the competence of member state courts to decide on recognition and enforcement of an arbitral award pursuant to the New York Convention, which is said to ‘take precedence over’ the recast Brussels I Regulation.

What are the potential challenges or difficulties that might arise from the provisions in recital 12?

LS: Recital 12 aims to maintain a clear separation between arbitration (governed by the New York Convention regime) and litigation (governed by the Regulation). But nothing in recital 12 (or elsewhere in the recast Regulation) indicates expressly how a member state court is to resolve a possible conflict between its obligations under the Regulation in respect of a judgment by one member state court and its obligations under the New York Convention to recognise and enforce an arbitral award rendered in respect of the same dispute.

The prospect of such a conflict arises because the decision by one member state that an arbitration agreement does not apply—and thus that it can continue to exercise jurisdiction over the merits of the underlying dispute and proceed to render judgment—does not prevent the court of another member state from taking the opposite view on the arbitration agreement and ordering the parties to arbitration. If such arbitration proceeds in parallel to litigation in a member state court, there is not only the possibility of inconsistent outcomes but also the possibility that a given member state court would be called upon to enforce both the judgment, under the Brussels regime, and the award, under the New York Convention.

The recast Brussels I Regulation provides only indirect guidance on how such a conflict should be resolved, with the suggestion in recital 12 that the New York Convention ‘takes precedence over this Regulation’ and the confirmation at art 73(2) that ‘this Regulation shall not affect the application of the 1958 New York Convention’. These statements suggest that, provided that the court to which the award is presented considers that the arbitration was based on a valid arbitration agreement, enforcement of the award should take priority over enforcement of the judgment. But the Regulation does not say that expressly.

NR: Perhaps unsurprisingly, the drafters of recital 12 stopped short of drawing out the logical consequence of the ‘precedence’ of the New York Convention: that a judgment of a member state court in a civil and commercial matter should—contrary to what the Regulation otherwise provides—not be recognised or enforced by another member state court that considers the dispute was subject to a valid arbitration agreement.

In your view, is recital 12 a blessing or a curse?

NR: Recital 12 is a ‘blessing’ to the extent that it clarified the scope of the arbitration exception—in particular by confirming that member state courts are free independently to determine the validity of an arbitration agreement, regardless of that issue also being considered (and even ruled on) by another member state court. That clarification helps to reduce the impact of so-called ‘torpedo actions’ on arbitration, in that it contemplates that arbitration may proceed with the support of the courts at the seat, even if parallel proceedings are pending in another member state court.

But recital 12 stops short of providing any tools for preventing such parallel proceedings in the first place. In particular, the drafters rejected both the suggestion that the European Court of Justice’s 2009 decision in West Tankers (Allianz SpA v West Tankers Inc: C-185/07 [2009] AC 1138, [2009] All ER (EC) 491) should be completely overruled, including with respect to the availability of anti-suit injunctions, and a proposal that member state courts should be obliged to stay proceedings if jurisdiction were challenged on the basis of an arbitration agreement and an arbitral tribunal had been constituted. Time will tell how big a ‘curse’ this is in practice, but at present this is an obvious lacuna in the Regulation.

LS: Another thing left unsaid in recital 12 (or elsewhere in the recast Regulation) is how the refusal to recognise or enforce the judgment of a member state court because it conflicts with an arbitration award based on what the receiving court considers to be a valid arbitration agreement fits within the framework established in art 45, which specifies only limited grounds for refusing to recognise and enforce the judgments of member state courts. Would this come within the—otherwise deliberately narrow—public policy exception to recognition and enforcement of member state judgments?

How does it sit alongside recent Court of Justice of the European Union (CJEU) decisions?

NR: Recital 12 tracks some of the earlier decisions on the scope of the arbitration exclusion, such as Rich (Marc) & Co AG v Società Italiana Impianti PA, The Atlantic Emperor: C-190/89 [1991] ECR I-3855, [1992] 1 Lloyd’s Rep 342 and Van Uden Maritime BV (t/a Van Uden Africa Line) v Kommanditgesellschaft in Firma Deco-Line: C-391/95[1999] QB 1225, [1999] All ER (EC) 258. It overturns the suggestion in West Tankers that a decision on the validity of an arbitration clause by one member state court should bind other member state courts. Entirely unsurprisingly, however, it leaves untouched the holding in West Tankers that it is not open to member state courts to issue an anti-suit injunction to restrain proceedings brought in the courts of another member state in breach of an arbitration agreement. While I am sure I will never convince the CJEU of the merits of such a tool for supporting arbitration (and indeed jurisdiction) agreements, the fact is that without any way to mandate compliance with an agreement to arbitrate the risk of parallel proceedings cannot be eliminated.

Are there any further observations you wish to add?

NR: After much debate and consideration, the recast Brussels I Regulation ultimately effected only marginal changes to the approach taken to arbitration pursuant to the Regulation. Those changes were a step in the right direction, but the spectre of abusive litigation tactics and parallel litigation and arbitration proceedings remains. It will now fall to the courts of member states to address those problems in practice.

Nigel Rawding’s arbitration experience includes numerous ad hoc, ICC, LCIA and UNCITRAL arbitrations, mainly as counsel but also sitting as arbitrator. He also represents clients in a wide variety of UK High Court litigation cases. He is a solicitor advocate (Higher Rights, Civil).

In addition to extensive experience of international commercial arbitrations, in Europe, the US and elsewhere, Liz Snodgrass has experience of complex multi-jurisdictional dispute resolution, litigation in the English, Nigerian and US courts in support of arbitrations and investment treaty arbitration.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.