OUR KNOWLEDGE / PUBLICATIONS / COURT OF APPEAL UPHOLDS ENFORCEMENT OF AN ARBITRATION AWARD FOR A NEGATIVE DECLARATION
West Tankers Inc. v Allianz SPA and Generali Assicurazione Generali SPA – the Front Comor
In a Judgment delivered on 24 January 2012, the Court of Appeal (Toulson, Lloyd and Carnwath LJJ) has decided that there is power under the Arbitration Act 1996 for the Court to order Judgment to be entered in the terms of an arbitration award, where the award takes the form of a negative declaration (i.e. that the successful party has no legal liability to the other party).
This is the latest chapter in a widely reported case, which has been the subject of a reference to the European Court of Justice (case C-185/07 Allianz SPA and other v West Tankers Inc. [2009] 1 Lloyd's Rep 413). The underlying dispute between the parties arises out of a collision between the vessel Front Comor and a pier serving an oil refinery belonging to the vessel's charterers, Erg Petroli SPA, in Italy.
Following the collision with the pier, substantial claims for loss and consequential damage were made by Erg against the shipowners, West Tankers, which were referred to arbitration in accordance with the London arbitration clause in the charterparty. As the reference in London was progressing, Erg's subrogated insurers brought a claim against West Tankers in the Tribunale di Siracusa, in Italy, in respect of the same incident.
West Tankers deny that the Tribunale di Siracusa has jurisdiction, bearing in mind the agreement to arbitrate in London.
The London Arbitration Tribunal issued an award in November 2008, declaring that it had jurisdiction and that West Tankers are under no liability (whether in contract or in tort or otherwise howsoever) to the insurers in respect of the collision.
Simon J granted West Tankers leave to enforce the arbitration award as a Judgment and entered Judgment in the terms of the award, pursuant to section 66 of the Arbitration Act 1996. By a Judgment dated 6 April 2011 ([2011] Lloyd's Rep 117), Field J dismissed an application by the insurers to set aside Simon J's order.
Field J explained that West Tankers were concerned in case the insurers were able to obtain a Judgment in their favour from the Tribunale di Siracusa and were then to seek (i) to have that Judgment enforced in England under the Brussels Regulation and (ii) to enforce a Club letter of undertaking, which is subject to English law and jurisdiction. Under Article 34(3) of the Regulation, a Judgment will not be recognised if irreconcilable with a Judgment between the same parties in the member state in which recognition is sought. He went on to say this:
“Where…as here, the victorious party's objective is obtaining an order under s.66 (1) and (2) is to establish the primacy of a declaratory award over an inconsistent Judgment, the Court will have jurisdiction to make a s.66 order because to do so will be to make a positive contribution to the securing of the material benefit of the award.”
The insurers appealed and the point they argued before the Court of Appeal was that Simon J and Field J had erred in their construction of section 66 of the Arbitration Act 1996, when deciding that the Court had jurisdiction to enforce a purely declaratory award.
Section 66 of the Arbitration Act 1996 provides:
“1. An award made by the Tribunal pursuant to an arbitration agreement may, by the leave of the Court, be enforced in the same manner as a Judgment or order of the Court to the same effect. [our underlining]
2. Where leave is so given, Judgment may be entered in the terms of the award”.
The insurers argued that Field J had misinterpreted the word “enforced” in the section and should have held that a declaratory Judgment - and especially a negative declaratory Judgment (which does not require anybody to do anything) - is incapable of being “enforced”. The insurers suggested that enforcement involves coercion, that “enforcement” was different from “recognition”, and that it is a well-recognised characteristic of a declaratory Judgment that it cannot be “enforced” as such.
West Tankers, on the other hand, argued that the purpose of section 66 is to support the arbitral process and to provide a simpler procedure for ensuring compliance with the award than having to bring an action on it. West Tankers submitted that the distinction between “recognition” and “enforcement” was immaterial in the context of an English arbitration award, not least because an English arbitration award is automatically binding under section 58 of the Act.
Dismissing the insurers' appeal, the Court of Appeal has held that a broad interpretation of the phrase in section 66: “enforced in the same manner as a Judgment… to the same effect” makes better sense than the narrow meaning contended for by the insurers. Lord Justice Toulson concluded as follows:
“At common law a party to an arbitration who has obtained a declaratory award in his favour could bring an action on the award and the Court, if it thought appropriate, could itself make a declaration in the same terms. The purpose of Section 66 is to provide a simpler alternative route to bringing an action on the award, although the latter possibility is expressly preserved by Section 66(4). I cannot see why in an appropriate case the Court may not give leave for an arbitral award to be enforced in the same manner as might be achieved by an action on the award and so give leave for Judgment to be entered in the terms of the award.”
On that basis, Field J's Judgment was upheld and the insurers' appeal was dismissed.
There has been much concern about flaws in the Brussels Regulation which mean a party seeking to arbitrate in the EU can find itself unable to prevent a conflicting judgment being obtained by its opposition in another EU member state (see for example, “A jurisdiction race in the dark” [2010] LMCLQ 364). It is now clear that an application of this sort is available to assist a party wishing to rely on an arbitration award, when the purpose is to seek to give that award precedence within the UK over a conflicting EU judgment.
If you have any questions on this case, please contact your usual Ince & Co contact or
Ian Chetwood
Partner, London
ian.chetwood@incelaw.com
Clare Kempkens
Partner, London
clare.kempens@incelaw.com
Ince & Co represent West Tankers in this matter