The Court of Appeal has handed down judgment in five related appeals ([2024] EWCA Civ 1536), providing important guidance on the interplay between arbitration seated in England, and decisions of European courts.
Background
The case arises out of the sinking in 2002 of the vessel M/T Prestige, which caused pollution in Spain, Portugal and France. Over many years since, litigation has been running in relation to the insurance policy provided by the London Steam-Ship Owners' Mutual Insurance Association Limited (known as the "Club").
The battle lines were drawn when Spain sued the Club in the Spanish courts, seeking damages in relation to the pollution and other impacts of the spill. That claim succeeded in 2019 when the Spanish court entered judgment against the Club for around US$1 billion. In 2012, however, the Club had begun an arbitration under the arbitration clause in the insurance policy, but Spain did not participate. The arbitrator held in 2013 that the arbitration clause applied and that Spain was required to pursue any claims though arbitration. The Club secured orders from the English Court under the Arbitration Act 1996, enforcing the decision of the arbitrator by making a judgment to the same effect.
Spain, meanwhile, had registered the Spanish judgment in England. However the Club challenged the registration on the basis that it was contrary to public policy, and irreconcilable with the judgment enforcing the arbitration award, both of which are grounds for refusal of recognition under the Brussels I Regulation (which applied to the proceedings but which had since been replaced by the Brussels Recast Regulation).
Referral to the EU Court of Justice
Mr Justice Butcher referred three questions to the EU Court of Justice (CJEU) which needed to be resolved in order for the English court to determine the challenge. The CJEU decided that the recognition of the Spanish judgment should not be prevented by Brussels I, because the Spanish proceedings had commenced before the arbitration, and because there is an exception in Brussels I for insurance matters.
Notwithstanding this decision, Butcher J nevertheless held that the judgments enforcing the arbitral award created an issue estoppel which precluded the decision of the CJEU from being binding. Butcher J also decided that the arbitration award itself created an issue estoppel against Spain, which meant that it would be against public policy to register and enforce the Spanish judgment in England.
Court of Appeal decision
The Court of Appeal disagreed with Butcher J in several respects. Their Lordships have handed down a judgment which has the following important implications:
First, the reference to the CJEU had been properly made and decided by the CJEU. The CJEU judges had relied on matters not referred to in the reference, but they were entitled to do so. The CJEU had jurisdiction to make a binding decision on the matter referred to it and it had done no more than that.
Second, the decisions of the English courts enforcing the arbitral award did not resolve exactly the same issue as the CJEU's decision. The decisions did not find that the award did have primacy over the decision of the Spanish Courts, but only that there was a real prospect of the award having primacy. This meant that the judgments enforcing the award did not create an issue estoppel with which the Spanish judgment conflicted.
Third, and confirming the Judge's decision on this point, the arbitrator's decision did create a binding issue estoppel as against Spain. The Brussels I Regulation (like the Recast Regulation which superseded it) does not affect the operation of the New York Convention, to which both the UK and Spain are signatories. That requires respect for arbitral awards, which should not be undermined by disregarding an arbitrator's decisions in favour of a national court. Enforcing this rule does not deprive Spain of any entitlement to access its own courts or any rule of comity.
Awards made against Spain and France
In a separate appeal, the Court of Appeal considered another arbitration award in which Sir Peter Gross (himself a former Court of Appeal judge) ordered Spain to compensate the club in any amount the Club was required to pay damages to Spain under the Spanish court judgment. Dame Elizabeth Gloster (another former Court of Appeal judge), sitting in another arbitration, made a similar award against France.
Spain and France both challenged these awards, but Butcher J agreed with the arbitrators that they had jurisdiction to make the awards and found that there was no irregularity or error of law. Spain and France appealed, and the Club also appealed part of the Judge's decision in which he found that the arbitrators had been right to refuse to grant injunctive relief against Spain and France, due to the State Immunity Act 1978 which precludes a court from granting an injunction against a state without the state's prior agreement that such relief may be granted.
The Court of Appeal decided:
First, that the Judge was right (for the reasons he gave) to find that the arbitrators could not grant injunctive relief against France or Spain.
Second, the Judge was wrong to grant equitable compensation for the breach of the obligation to arbitrate, by way of an indemnity for such damages as might have to be paid to France or Spain under the Spanish judgment. The arbitrators were not entitled to grant this sort of relief, because they were limited to orders that an English court could make, and such equitable damages can only be granted (under section 50 of the Senior Courts Act 1981) when the Court would have had the power to grant an injunction. The decision under the State Immunity Act meant that the equitable compensation relief also could not be granted. In any event, the Court of Appeal decided that the orders were more in the nature of orders to compensate the Club for Spain's breach of the payment provisions in the insurance agreement, rather than compensation for breach of the arbitration agreement.
Conclusion
The English Court of Appeal has robustly upheld its construction of the obligations of states under the New York Convention, even where there are conflicting court decisions which might be recognised if the Brussels Recast regulation were applied alone. This is clear from the agreement of states to the New York Convention, and the clear principle that the Brussels Regulation should not trespass on the effect of the New York Convention. However, the limitations on the powers of English courts and arbitrators to address the actions of states means that there is currently no relief which protects the Club against potential enforcement of the Spanish judgment outside of England and Wales.
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