“Thou shall not sue!” – who decides?

By Artem Doudko and Veronica Astashonak of White & Case LLP

There is no doubt that the decision in Gazprom[1] was widely anticipated by everyone in the arbitration community. Primarily it was seen as an opportunity for the European Court of Justice (“ECJ”), now renamed the Court of Justice of the European Union (“CJEU”), to depart from its highly controversial decision in West Tankers[2], if not to overturn it altogether. But this wasn’t the only reason. The Gazprom case allowed the CJEU to consider and bring more clarity to a number of other issues, such as the impact of the Recast Regulation[3], the relationship between European Union law and obligations of Member States under other international law instruments and the position of arbitral tribunals that are not seated in a Member State.

 

Brussels Regulation[4] and the West Tankers decision

The Brussels Regulation contains, in Article 1(2)(d), what is known as an “arbitration exception”. It excludes arbitration matters from the scope of the Regulation’s application. The arbitration exception has been preserved in the Recast Regulation, which came into force on 10 January 2015 and its operation has been clarified further in Recital 12 of the Recast Regulation.

Despite the presence of this exception, in the West Tankers case, the CJEU ruled that a Member State court could not prevent a party from initiating legal proceedings in a court of another Member State in a dispute containing an arbitration clause. In the CJEU’s opinion, to allow this would deprive the court of such other Member State of the power to rule on its own jurisdiction. Such outcome, in its view, was incompatible with the Brussels Regulation. Thus, it held that the court “first seised”, i.e. the court where proceedings were commenced first, should decide whether it had jurisdiction under the Brussels regime.

The decision in West Tankers seemingly extended the scope of the Brussels Regulation to arbitration matters that were expressly excluded from it by way of Article 1(2)(d). West Tankers was widely criticised for undermining the certainty which counterparties sought to achieve by including arbitration agreements in their contracts, and for providing a basis for tactical litigation which enabled parties to delay resolution of a dispute that was subject to arbitration by initiating proceedings in court instead.

 

The Gazprom case

West Tankers, of course, concerned a court-ordered anti-suit injunction. In Gazprom the question arose whether, by analogy, in a situation where an anti-suit injunction was granted by an arbitral tribunal, a Member State court was precluded from recognising and enforcing, or from refusing to recognise and enforce such an arbitral award on the ground that it would be incompatible with the Brussels Regulation.

 

The Background

The dispute arose in 2011 when the then-Ukrainian Ministry of Energy initiated proceedings in the local courts in breach of a shareholders’ agreement, which Gazprom was party to and which contained an arbitration clause. Gazprom initiated arbitration proceedings under the Arbitration Rules of the Stockholm Chamber of Commerce (“SCC”) and asked the arbitral tribunal to order the Ministry of Energy to discontinue the proceedings before the domestic courts. The SCC tribunal agreed that the shareholders’ agreement has been partially breached and issued an award in favour of Gazprom which contained an anti-suit injunction ordering the Ministry of Energy to withdraw some, and limit a number of other, of its claims.

However, when it came to the recognition and enforcement of the arbitral award in Lithuania, the Lithuanian Court of Appeal refused, holding that the arbitral tribunal could not rule on an issue already raised before and examined by the local courts. It argued that recognition and enforcement of such an award would limit the Ministry’s capacity to bring proceedings before local courts and deny those courts the power to determine whether they have jurisdiction – contrary to Lithuanian and international public policy.

 

The three questions

This decision was appealed to the Supreme Court of Lithuania, which, in light of the uncertainty resulting from the wording of the Brussels Regulation and the relevant case law, referred the following three questions to the CJEU:

  1. Whether a Member State court has the right to refuse to recognise an award of an arbitral tribunal which contains an anti-suit injunction on the ground that it restricts the court’s right to determine itself whether it has jurisdiction to hear the case.

 

  1. If the answer to the first question is affirmative, whether a Member State court has the right to refuse to enforce an anti-suit injunction issued by an arbitral tribunal if it orders a party to limit its claims in another Member State court and such court has jurisdiction to hear that case.
  2. Whether, for the purpose of ensuring the supremacy of the EU law and full effectiveness of the Brussels Regulation, a Member State court has the right to refuse to recognise an arbitral award of an arbitral tribunal if it restricts the right of the national court to decide on its own jurisdiction.

 

The Decision

The CJEU started its discussion with a reminder that the Brussels Regulation only governs conflicts of jurisdiction between courts of Member States and that arbitration is excluded from its scope. It also stressed that arbitral tribunals are not courts of State and hence there was no conflict under the Brussels Regulation. It held that “the proceedings for the recognition and enforcement of arbitral awards are governed by the national and international law applicable in the Member State in which recognition and enforcement are sought, and not by Regulation No 44/100”.

The CJEU found that since the anti-suit injunction in question was made by an arbitral tribunal there could be no question of an infringement of the principle of mutual trust by interference of a court of one Member State in the jurisdiction of the court of another Member State. The CJEU also concluded that the party precluded from pursuing its claims before a court of a Member State will not be denied judicial protection in subsequent enforcement and recognition proceedings. It will be open to such party to contest the recognition and enforcement of such arbitral award and the court seised will have to determine whether or not the award in question should be recognised and enforced by applying its national procedural law and international law.

 

The Conclusion

The CJEU seemingly distinguished West Tankers on the basis that the two cases dealt with different issues. Whereas West Tankers was concerned with enforcement of an anti-suit injunction issued by a Member State court, Gazprom dealt with enforcement of an arbitration award of a Member State seated arbitral tribunal which contained an anti-suit injunction. The questions before the CJEU were different; hence it did not feel that it had to grapple with the issues in West Tankers.

Another missed opportunity relates to the Recast Regulation. In December 2014 Advocate General Wathelet, who was also one of the panel judges in Gazprom case, delivered his Opinion in which he discussed at length the Recast Regulation and the effect of Recital 12. However, in the circumstances of the Gazprom case, it was the Brussels Regulation that applied. In its decision, the CJEU did not consider the Recast Regulation. It, therefore, remains unclear if the position would be any different in cases where the Recast Regulation comes to play.

This leads on to another point. The decision in Gazprom is interesting in light of the current debate as to the relationship between European Union law and other international obligations of Member States. In this instance the CJEU clearly upheld the idea that that matters excluded from the scope of the Brussels Regulation are governed by the applicable national procedural law and international law, such as the New York Convention, and not by the European Union Law.

Notwithstanding the ever-present want of more, the decision in Gazprom has been highly welcomed by the arbitration community. It has been viewed strengthening the position of arbitral tribunals when it comes to protecting their jurisdiction and upholding arbitration agreements.

But one should still remain cautious. Although it seems to suggest that an arbitral tribunal seated in a Member State will now have more power in terms of its ability to use anti-suit injunctions than a Member State court has, it remains to be seen whether it will actually make such tribunals more powerful. The CJEU only said that Member State courts cannot rely on the Brussels Regulation in order to deny recognition and enforcement of awards issued by an arbitral tribunal, but they still can rely on other grounds, such as domestic or international public policy.


 

[1] Case C-536/13.

[2] Case C-185/07.

[3] Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Recast Regulation”).

[4] Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels Regulation”).

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