Introduction
This is the judgment of the court on an appeal from an order of Moore-
Bick J dated 18 December 2003. By that order he dismissed the
defendant's challenge to the jurisdiction of the English High Court,
declared that the defendant was bound to refer certain claims to
arbitration in England and that proceedings issued by the defendant
in Finland were brought in breach of the agreement to arbitrate and
granted an injunction restraining the defendant from continuing with the
proceedings in Finland and/or from commencing proceedings otherwise
than by way of arbitration in London. The judge also ordered the
defendant to pay the claimant's costs and gave the defendant permission
to appeal.
Facts
The facts are not in dispute and can be taken from the judge's judgment.
In October 1999 an Indian merchant, S. abrics, shipped on board the
vessel Hari Bhum at Calcutta a container said to contain various types
of garments for carriage to Moscow. The container was shipped under
two through transport bills of lading issued by B. M. Ltd ("BML"), which
provided for the goods to be carried by sea to Kotka in Finland and thence
by road to Moscow. The goods were insured against loss or damage in
transit by the defendant, N. I. Assurance Company Limited ("N. I.").
The container arrived at Kotka on 30 November 1999. On 16 December
B. M. O. ("BMO"), an associated company of the carrier incorporated in
Finland, issued a CMR waybill for the carriage of the container by road
from Kotka to Moscow. Unfortunately, the container did not reach Moscow,
having been lost in circumstances which are still in dispute somewhere in
the course of its journey through Russia.
The claimant, T. T. M. Insurance Association (Eurasia) Ltd ("the Club"), is
a mutual insurance association which provides insurance to its members
in respect of various kinds of losses and liabilities incurred in connection
with the carriage of goods. BML was a member of the Club for the year
beginning 1 September 1999. BMO was also insured under the same
cover as an associated company of BML.
Following the loss of the container, S. Fabrics made a claim against N. I.
which was in due course compromised. As a result of the compromise N.
I. became entitled to exercise S. Fabrics' rights against the carrier, either
as assignee of those rights or by way of subrogation; we are not sure
which. During 2002 BMO filed for bankruptcy and on 26 November 2002
it was struck off the register in Finland. As the judge observed, it is not
clear whether any claim had been intimated to the company before that
occurred, but it is common ground that no payment had been made by
either BMO or BML in respect of the loss of the container.
The Club rules for the year beginning 1 September 1999 included the
following provisions:
"Clause A. Cargo Liabilities
1 RISKS INSURED
1.1 Loss of or Damage to Cargo
You are insured for your liability for physical loss of or damage to Cargo
and for consequential loss resulting from such loss of damage.
General Provisions
Clause A. Exclusions & Qualifications
1. STANDARD EXCLUSIONS AND QUALIFICATIONS
....................
1.3 Indemnity insurance
Insurance with the Association is on the basis of indemnity which means
that the Association shall pay you only
(a) after you have suffered a physical loss of your insured property, for
example, your Equipment, or
(b) after you have expended money, for example, by paying a claim of
your Customer or a Third Party for which you are liable or by paying for
repairs to your insured property.
Clause D. Law & Disputes
1. LAW
Every insurance provided by the Association and the rights and obligations
of you (or any other person) and the Association arising out of or in
connection with such insurance, is subject to and shall be construed in
accordance with English law.
2. DISPUTES
If any difference or dispute shall arise between you (or any other person)
and the Association out of or in connection with any insurance provided by
the Association or any application for or an offer of insurance, it shall be
referred to arbitration in London.
2.2 The submission to arbitration and all proceedings in connection with it
shall be subject to English law.
2.3 No action or other legal proceedings against the Association upon any
such dispute may be maintained unless and until it has been referred to
arbitration and the award has been published and become final.
2.4 The sole obligation of the Association to you in respect of such dispute
is to pay such sum, if any, as such final award may direct."
Clause A1.3(b) is colloquially known as a pay to be paid clause and
clauses D2, 2.3 and 2.4 together contain both an arbitration clause and
a Scott v Avery clause and are very similar to the clauses considered
by Leggatt J in Socony Mobil Oil Co Inc v West of England Ship Owners
Mutual Insurance Association (London) Ltd (The Padre Island (No 1))
[1984] 2 Lloyd's Rep. 408.
On 19 October 1999 the Club issued a certificate of membership ("the
certificate") with the terms of the cover attached. The parties to the
contract at that time were of course only BML and BMO on the one
hand and the Club on the other. Neither S. Fabrics nor N. I. was a party.
However, having paid S. Fabrics, N. I. naturally wanted to recover
the amount it had paid from those responsible for the loss. It could
not recover from BMO because it was insolvent (or indeed from BML
presumably for the same reason) and it naturally considered how it could
recover directly from the Club as the liability insurer of both BMO and
BML. The claim is, by today's standards, comparatively modest. We were
told that it is of the order of US$250,000 plus interest.
N. I. did not proceed in England under the Third Party (Rights Against
Insurers) Act 1930, no doubt because of the pay to be paid clause and
the decision of the House of Lords in Firma C-Trade S.A. v Newcastle
Protection and Indemnity Association (The Fanti) and Socony Mobil Oil
Co Inc v West of England Ship Owners Mutual Insurance Association
(London) Ltd (The Padre Island (No.2)) [1990] 2 Lloyd's Rep. 191.
Instead, on 16 December 2002 N. I. began proceedings in its own name
against the Club in Finland by applying to the District Court of Kotka for
the issue of a writ in respect of its claim for the loss of the container. The
claim was made under section 67 of the Finnish Insurance Contracts Act
1994 ("the Finnish Act").
Section 67 provides as follows:
"Injured person's entitlement to compensation under general liability
insurance
A person who has sustained bodily injury, property damage or financial
loss under general liability insurance is entitled to claim compensation in
accordance with the insurance contract direct from the insurer, if:
1) the insurance policy has been taken out pursuant to laws or regulations
issued by the authorities;
2) the insured has been declared bankrupt or is otherwise insolvent; or
3) the general liability insurance has been mentioned in marketing efforts
launched to promote the insured's business.
If such claim is made to the insurer, the insurer shall inform the insured
of the claim without undue delay and reserve the insured an opportunity
to give further information on the occurrence of the insured event. The
insured shall also be notified of the subsequent processing of the claim.
If the insurer accepts a claim made by a person who has sustained bodily
injury, property damage, or financial loss, such acceptance is not binding
on the insured."Section 67 thus gives a third party the right in some
circumstances to proceed directly against a liability insurer such as the
Club when the insured who would otherwise be liable to the third party is
insolvent.The only other section of the Finnish Act which is (so far as we
are aware) relevant or potentially relevant is section 3, which provides as
follows:
"Peremptory nature of the provisions
(1) Any terms or conditions of an insurance contract that deviate from the
provisions of this Act to the detriment of an injured person or a person
entitled to compensation or benefits other than the policyholder shall be
null and void.
(2) Any terms or conditions of an insurance contract that deviate from
the provisions of this Act to the detriment of the policyholder shall be
null and void if the policyholder is a consumer or a business which in
terms of the nature and scope of its operations or other circumstances
can be compared to a consumer as a party to the contract signed with
the insurer. What is provided in this Subsection is not applied to group
insurance contracts.
(3) The provisions contained in Subsections 1 and 2 are not applied to
credit insurance, marine or transport insurance taken out by businesses,
or insurance taken out by businesses to insure aircraft."As can be seen,
section 3 is an anti-avoidance provision not dissimilar from that contained
in the Third Party (Rights Against Insurers) Act 1930.On 3 January 2003 a
writ was issued in Finland which was served on the Club in England on 31
March. On 30 April the Club took steps to contest the jurisdiction of the
District Court of Kotka. As we understand it, it did so without submitting
to the jurisdiction for any other purpose. On 8 May it issued an arbitration
claim form in the High Court seeking a declaration that N. I. is bound
to pursue any claim in arbitration and an injunction to restrain it from
pursuing its claim in Kotka. On 16 May Gross J gave the Club permission
to serve the claim form on N. I. out of the jurisdiction and on 2 July,
following service of the proceedings in Mumbai, N. I. applied for the order
for service out of the jurisdiction to be set aside or, in the alternative, for
the proceedings here to be stayed in the exercise of the court's discretion.
On 22 October 2003 the District Court of Kotka rejected the Club's
challenge to its jurisdiction. In reaching its conclusion the court held
that it had jurisdiction to determine the claim because it arose out of
an international contract for the carriage of goods by road and because,
under article 10 of the EC Judgments Regulation (Council Regulation (EC)
No 44/2001) ("the Regulation"), claims against insurers may be brought
in the courts of the country where the harmful event occurred. It appears
to have held that, although the loss occurred in Russia, the harmful event
occurred in Finland on the basis that the loss was caused there, although
the court does not spell out the basis of that finding in its judgment.
…
The court thus held that neither S. Fabrics nor N. I. was a party to the
contract of insurance and that N. I.'s claim against the Club was not
derived from BMO. For these reasons it was not bound by the arbitration
agreement. We understand that an appeal against that decision is
pending, although no date for it has yet been fixed. The order which is
the subject of this appeal expressly permits N. I. to defend the appeal in
Finland, notwithstanding the injunction.The issues
The parties' positions before the judge can be summarised in this way.
The Club relied upon the arbitration clause in its rules. It said that, if N.
I. is to recover under section 67 of the Finnish Act, it can only do so "in
accordance with the insurance contract" between the BMO and the Club
and that it follows that it is, at least for that purpose, bound by all the
Club rules including the arbitration clause. It thus follows that N. I. must
bring the claim by way of arbitration in England. It makes that submission
in these proceedings. In due course it will submit in the arbitration that it
is entitled to a declaration that N. I.'s claim is doomed to failure because
it is bound by (and cannot satisfy) the pay to be paid clause. The Club
said that in these circumstances it is entitled to an injunction to restrain
N. I. from proceeding in Finland or elsewhere in breach of the arbitration
clause.
N. I.'s case was that it is suing in Finland in reliance upon an independent
statutory cause of action created by a Finnish statute and that the English
court has no jurisdiction because the Finnish court was first seised of the
dispute under Article 27 of the Regulation. Moreover it said that it is not
suing on the contract of insurance in the Club rules or indeed bringing a
claim in contract at all and that it is not bound by the arbitration clause
in the rules. In any event it said that the issue whether it was bound by
the arbitration clause was one in respect of which the Finnish court was
first seised and that under Finnish law both the arbitration clause and the
pay to be paid clause are void. Alternatively N. I. said that the English
proceedings should be stayed on the ground of forum non conveniens and
in any event that no injunction should be granted.
Since the case was before the judge there have been two important
decisions of the European Court of Justice ("ECJ") upon which N. I. places
considerable reliance in support of its submissions, and especially in
support of its case that no injunction should be granted by the English
Court restraining proceedings in Finland. They are Erich Gasser GmbH v
Misat Srl, ECR C-116/02, in which the judgment was given on 9 December
2003, and Turner v Grovit, ECR C-159/02 [2004] All ER (EC) 485, in
which judgment was given on 27 April 2004. The judgment of the judge
was given on 18 December 2003 at a time when he was unaware of the
decision in Gasser.The decision of the judge
The judge's conclusions may be shortly summarised in this way.
i) N. I. was bound to submit the claim under section 67 of the Finnish
Act to arbitration in London. In proceedings before an English court a
dispute about N. I.'s claim can only be resolved by applying the principles
of English private international law relating to characterisation. On the
authorities, notably National Bank of Greece and Athens v Metliss [1958]
AC 509, Adams v National Bank of Greece [1961] AC 255 and Macmillan
Ltd v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387, the
question depends on whether N. I. is seeking to enforce a contractual
obligation derived from the contract of insurance or an independent right
of recovery arising under the Finnish Act. If in substance the claim is
independent of the contract of insurance and arises under the Finnish
legislation simply as a result of its having a right of action against an
insolvent insured, the issue would have to be characterised as one
of statutory entitlement to which there may be no direct equivalent
in English law. In that case the issue would have to be determined
in accordance with Finnish law. If, on the other hand, the claim is in
substance one to enforce against the insurer the contract made by the
insolvent insured, the issue is to be characterised as one of obligation.
In that case the court will resolve it by applying English law because
the proper law of the contract creating the obligation is English law:
see Adams v National Bank of Greece.ii) The effect of section 67 is in
substance to enable an injured party who has a claim against an insolvent
insured to bring proceedings directly against the insurer to obtain the
benefit that the insured would himself have been entitled to obtain under
the contract. The essential nature of the right created by section 67 is to
enforce the terms of the contract.
iii) The obligations of the Club under the contract of insurance are
governed by English law and accordingly Finnish legislation will not be
recognised in this country as effective to modify them. It follows that if N.
I. wishes to pursue a claim against the Club, it must do so in accordance
with the terms of the contract under which it arises. That includes the
arbitration clause.
iv) It further follows that the court had jurisdiction in this case to give
permission to serve the claim form out of the jurisdiction under CPR
6.20(5)(c) and rule 62.5(1)(c) and that it has jurisdiction to grant an
injunction to prevent the continuation of proceedings contrary to the
terms of the arbitration clause.
v) The court was not bound to stay the proceedings under Article 27.1 of
the Regulation because by Article 1.2(d) it does not apply to arbitration
and because, following the decision of Aikens J in Navigation Maritime
Bulgare v Rustal Trading Ltd (The 'Ivan Zagubanski') [2002] 1 Lloyd's
Rep. 107, these proceedings are within the arbitration exception and thus
outside the Regulation.
vi) There was no basis for staying the proceedings or setting aside the
service outside the jurisdiction as a matter of discretion, given the judge's
conclusion that the Club was entitled to have the matter arbitrated in
England and not pursued in litigation in Finland or elsewhere.
vii) Applying the principles in the authorities as to anti-suit injunctions,
the club was entitled to an injunction restraining N. I. from proceeding
further in Finland.
The appealThe argument in the appeal ranged somewhat more widely
than before the judge because it was submitted by Mr Smith on behalf
of N. I. that, as the court first seised, the Finnish court and not the
English court must decide whether these proceedings are within the
arbitration exception or not. He also submitted that, if it was open to the
English court to determine that question, we should hold that The Ivan
Zagubanski was wrongly decided and that the proceedings are outside
the arbitration exception, with the consequence that the proceedings
are within the Regulation and that this court must decline jurisdiction
or stay the proceedings under Article 27. Mr Smith further relied upon
the decisions of the ECJ in Gasser and Turner v Grovit in support of his
submission that in any event no anti-suit injunction should have been
granted.
The principal questions which arise in the appeal seem to us to be these:
i) Should the court decline jurisdiction or stay the proceedings under the
Regulation?ii) Was the judge right to hold that N. I. is bound to pursue its
claim under the Finnish Act by arbitration in England?
iii) Should the permission to serve the claim form out of the jurisdiction
be set aside or the proceedings be stayed as a matter of discretion?
iv) Should the judge have granted the declarations he did?
v) Should he have granted an anti-suit injunction?
We will consider those questions under these headings: the Regulation,
the arbitration clause, setting aside service and stay, the declarations and
the anti-suit injunction.The Regulation
The Regulation provides, as far as relevant, as follows:
"CHAPTER 1 – SCOPE
Article 1
2. The Regulation shall not apply to:
……
(d) arbitration.
CHAPTER II – JURISDICTION
SECTION 9 – LIS PENDENS – RELATED ACTIONS
Article 27
1. Where proceedings involving the same cause of action and between
the same parties are brought in the courts of different Member States,
any court other than the court first seised shall of its own motion stay its
proceedings until such time as the jurisdiction of the court first seised is
established.
2. Where the jurisdiction of the court first seised is established, any court
other than the court first seised shall decline jurisdiction in favour of that
court.
Article 28
1. Where related actions are pending in the courts of different Member
States, any court other than the court first seised may stay its
proceedings.
2. Where these actions are pending at first instance, any court other than
the court first seised may also, on the application of one of the parties,
decline jurisdiction if the court first seised has jurisdiction over the actions
in question and its law permits the consolidation thereof.
3. For the purposes of this Article, actions are deemed to be related where
they are so closely connected that it is expedient to hear and determine
them together to avoid the risk of irreconcilable judgments resulting from
separate proceedings.
….
Article 36
Under no circumstances may a foreign judgment be reviewed as to its
substance."
It is common ground that the Finnish court is the court first seised. Mr
Smith submitted that the English court should decline jurisdiction or
stay the proceedings under Article 27 or stay them under Article 28.
Mr Howard submitted on behalf of the Club that the Regulation has no
application because these proceedings relate to arbitration and are within
the arbitration exception in Article 1.2(d). However, Mr Smith took a
prior point, namely that, as the court first seised, it is for the Finnish
court and not the English court to decide whether these proceedings are
within the Regulation or not and that the English court should stay these
proceedings in the meantime under Article 27 of the Regulation, pending
a decision of the Finnish court on that question. We will therefore consider
that question first.
There is undoubted force in Mr Smith's submission if it is considered in
principle and without regard to the decided cases. It seems to us to be
at least arguable that the court first seised should indeed decide whether
any relevant set of proceedings in a member state is within the Regulation
or outside it because the arbitration exception applies, in order to have
a clear rule on that question and in order to avoid conflicting judgments
on that very question. However, that is not the approach which has so far
been adopted.
Mr Howard relied upon the decision of the ECJ in Marc Rich & Co AG v
Societa Italiana PA (The Atlantic Emperor) [1992] 1 Lloyd's Rep 342. He
submitted that that decision is inconsistent with the proposition advanced
by Mr Smith. In that case plaintiff buyers ('Marc Rich') claimed damages
for breach of contract from defendant sellers of crude oil ('Impianti')
alleging that the oil was contaminated. On February 18 1988 Impianti
issued a writ in Italy claiming a declaration that it was not liable to Marc
Rich. The writ was served on February 29 and on the same day Marc
Rich commenced an arbitration in London. Impianti failed to appoint an
arbitrator. On May 20 Marc Rich issued an originating summons asking
the English court to appoint an arbitrator and obtained leave to serve
the summons out of the jurisdiction. On July 8 Impianti applied to set
aside the order giving leave to serve out of the jurisdiction on the ground
that the dispute between the parties was whether or not the contract
contained an arbitration clause and fell within the arbitration exception
in Article 1(4) of the Convention on Jurisdiction and Enforcement
of Judgments in Civil and Commercial Matters 1968 ("the Brussels
Convention"), which was of course the forerunner to the Regulation. Marc
Rich argued that the Brussels Convention did not apply on the ground that
the arbitration exception in Article 1(4), which was in the same terms as
Article 1.2(d) of the Regulation, applied.
The Court of Appeal referred these questions to the ECJ for a preliminary
ruling:
"1. Does the exception in Article 1(4) of the Convention extend:
(a) to any litigation or judgments and, if so,
(b) to litigation or judgments where the initial existence of an arbitration
agreement is in issue?
2. If the present dispute falls within the Convention and not within
the exception to the Convention, whether the buyers can nevertheless
establish jurisdiction in England pursuant to:
(a) Article 5(1) of the Convention, and/or
(b) Article 17 of the Convention.
3. If the buyers are otherwise able to establish jurisdiction in England
than under paragraph 2 above, whether:
(a) the Court must decline jurisdiction or should stay its proceedings
under Article 21 of the Convention or, alternatively,
(b) whether the Court should stay its proceedings under Article 22 of the
Convention, on the grounds that the Italian Court was first seised."
Impianti relied upon a report prepared for them by Mr Jenard, who had
of course previously made a report on the Brussels Convention and the
1971 Protocol to which, like that of Professor Schlosser on the 1978
Accession Convention, the court may consider and which must be given
such weight as is appropriate in the circumstances, by reason of the
express terms of section 3(3) of the Civil Jurisdiction and Judgments Act
1982. In paragraph 22 of his report prepared for Impianti Mr Jenard said
this:
"Both the Italian and the English Courts are presently seised of this
matter. The Italian Court (which was the court where proceedings were
first brought) is asked to deal with the merits of the claim brought by
Marc Rich under the sale contract and, incidentally to that claim, to
confirm its own jurisdiction and determine the validity of the disputed
jurisdiction clause in the contract. The English Court, on the other
hand is asked to decide whether the arbitration clause is valid and if
so to appoint an arbitrator. It is therefore certain that both the English
and Italian Courts will directly or indirectly rule on the validity of the
arbitration clause and it is further possible that they could come to
different conclusions, in the event that the Italian courts, in reaching a
conclusion on the merits, consider the Arbitration Clause to be invalid or
non-existent and the English Court find that there is a valid Arbitration
Agreement. In this respect it is important to remember the aims of the
Brussels Convention."
Mr Jenard then referred to Effer v Kantner [1982] ECR 825 and in
paragraph 24 stressed the desirability of avoiding simultaneous
proceedings on the same subject matter before the courts of two or
more contracting parties "since this would lead to conflicting judgments
and difficulties in the enforcement thereof". His view was that, since the
Italian court was the court first seised, it should determine the question
whether the arbitration clause was valid and that, if it held that it was,
the parties should be sent to arbitrate in England, whereas if it held that
it was not, the litigation should remain in Italy. In the meantime the
English court should stay its proceedings under Article 21 of the Brussels
Convention, which was the equivalent of Article 27 of the Regulation.
…
There is force in that submission. It seems clear that the Advocate
General did not think that it was a matter for the Italian court, as the
court first seised, to determine whether the English proceedings were
within the arbitration exception. Moreover there is nothing in the ECJ
decision or reasoning to suggest that that was not a matter for the court
in which the proceedings said to be subject to the arbitration exception
are brought, which was of course the English court in that case, to
determine. Although the ECJ did not specifically address that question, it
is we think reasonably clear that that was its view and we do not accept
Mr Smith's submission that, because the Finnish court was the court first
seised, the judge should have stayed the proceedings under Article 27 of
the Regulation pending a decision by the Finnish court on the question
whether the English proceedings were within the arbitration exception
under Article 1.2(d) of the Regulation.
…
Mr Smith submitted that the same reasoning leads to the conclusion that
the court first seised should decide whether the claim in the court second
seised is within the Regulation or outside it because of the arbitration
exception. As we indicated earlier, there is force in that submission but
we do not accept it for the reason given by Mr Howard. The reason is that
there is a crucial distinction between this case and Gasser, namely that in
Gasser it was common ground that the claims in both courts were within
the Convention and governed by Articles 21 and 22, whereas here that is
not common ground. The question here is whether the claim in England is
within the Regulation or not.
In these circumstances we do not accept Mr Smith's submission that
the English court is no more entitled to consider the applicability of the
arbitration exception than the Austrian court was entitled to consider
Article 17 of the Convention in Gasser. As already indicated, it appears
to us that the reasoning of the Advocate General and of the ECJ in The
Atlantic Emperor supports the conclusion that it is open to the court in
which the issue whether the arbitration exception applies to consider
that question, even if it is the court second seised. If it concludes that
the arbitration exception applies so that the claim and proceedings are
outside the Convention it is entitled to proceed in the ordinary way.
If, on the other hand, it concludes that the exception does not apply
and that the proceedings are within the Convention, the provisions of
the Convention apply in their full rigour, in which event, if a question
arose as to whether the court second seised had jurisdiction under an
exclusive jurisdiction clause to which Article 23 applied, it would be for
the court first seised to determine that question by reason of Article
27 in accordance with the decision of the ECJ in Gasser. It follows that
we do not accept the submission that the judge should have stayed the
proceedings under Article 27 of the Regulation pending a decision by the
Finnish court on the question whether the English proceedings were within
the arbitration exception under Article 1.2(d) of the Regulation.
The next question is whether the judge was right to hold that the claim
in these proceedings comes within the arbitration exception and is
thus outside the Regulation altogether by reason of Article 1.2(d). Mr
Smith submitted that the decision of Aikens J in The Ivan Zagubanski
was wrong and that it follows that the decision of the judge, which
followed it, was also wrong. This is a topic upon which there has been
some divergence of opinion at first instance. This can be seen from the
judgment of Aikens J, who (at pp 118-9) disagreed with the analysis
of Judge Diamond QC in Pertenreederei M/S 'Heidberg' v Grosvenor
Grain and Feed Co Ltd (The Heidberg) [1994] 1 Lloyd's Rep 287.….It is
common ground between the parties that under the revised EC Treaty
this court no longer has power to refer questions on the interpretation of
the Regulation to the ECJ. The only court which can do so is the House
of Lords, which, as a court against whose decisions there is no judicial
remedy in the United Kingdom, is bound to refer such a question in the
circumstances identified in the adapted Article 234 quoted above.In The
Ivan Zagubanski Aikens J considered a number of first instance decisions
in addition to The Heidberg, including Qingdao Ocean Shipping Co v
Grace Shipping Establishment (The Xing Su Hai) [1995] 2 Lloyd's Rep
15, Toepfer International GmbH v Molino Boschi Srl [1996] 1 Lloyd's
Rep 510, Lexmar Corporation and The Steamship Mutual Underwriting
Association (Bermuda) Ltd v Nordisk Skibsrederforensig and Northern
Tankers (Cyprus) Ltd ("The Lexmar case") [1997] 1 Lloyd's Rep 289 and
Toepfer International GmbH v Société Cargill France [1997] 2 Lloyd's Rep
98.
In The Ivan Zagubanski explosions and fire had caused damage to
cargo, which had been shipped under bills of lading containing English
arbitration clauses. Cargo interests brought proceedings in Marseille and
elsewhere against the shipowners. The claimant shipowners claimed a
declaration that there was a valid arbitration agreement between the
parties and sought an anti-suit injunction restraining the cargo interests
from pursuing court proceedings in Marseille or elsewhere. Aikens J held
that the claims were within the arbitration exception and thus outside the
Brussels Convention and granted both the declaration and the injunction
sought. In reaching his conclusion on the first point he analysed the
opinion of Advocate General Darmon in The Atlantic Emperor and relied
both upon it and upon the decision and reasoning of the ECJ, part of
which we have already set out.
Aikens J set out what in our view is an entirely accurate account of the
Advocate General's opinion in paragraph 70 of his judgment as follows:
"Mr Advocate General Darmon's opinion is elaborate and gives a detailed
analysis of the structure and scope of the Convention and its relationship
with arbitration. The following points in his opinion seem particularly
relevant to the present case:
(1) Before the Brussels Convention there were already important
international conventions governing the enforcement of arbitration
agreements and awards, particularly the New York Convention of 1958.
(2) Although the application before the English Courts in Marc Rich
was for the appointment of an arbitrator, there was a threshold or
"preliminary" question that had to be considered: whether an arbitration
agreement existed at all.
(3) The "principal issue" before the English Court was the appointment of
an arbitrator. That is not within the Convention.
(4) If the "principal issue" is outside the scope of the Convention, then
even if a "preliminary matter" is within the Convention, that cannot bring
the whole proceedings within the scope of the Convention. In this case
the "preliminary matter" is whether an arbitration agreement exists.
(5) In any event a dispute as to the existence of an arbitration agreement
falls outside the scope of the Convention. This opinion is reinforced
by the view at par 64 of Professor Schlosser's report on the Accession
Convention.
(6) Whether or not the existence of an arbitration agreement is a
preliminary or principal issue, "it seems that the principal subject-matter
of the dispute before the national Court relates to arbitration."
(7) The views of Mr Schlosser (expressed in an opinion prepared
specifically for that case when before the ECJ) that the Convention applied
to all proceedings before Courts must be rejected. They are contrary to
the views expressed in the reports by Mr Jenard and Mr Schlosser on the
original Convention and the Accession Convention. They stated:
(a) The Brussels Convention … does not apply for the purpose of
determining the jurisdiction of courts and tribunals in respect of litigation
relating to arbitration … and does not apply to the recognition of
judgments given in such proceedings.
(b) … the 1968 Convention does not cover court proceedings which
are ancillary to arbitration proceedings, for example the dismissal of
arbitrators, the fixing of the judgment determining whether an arbitration
agreement is valid or not … is not covered by the 1968 Convention.
(8) The report of Messrs Evrigenis and Kerameus (on the accession of the
Hellenic Republic to the Brussels Convention in 1986) also stated that:
Proceedings which are directly concerned with arbitration as the principal
issue … are not covered by the Convention.
(9) It is not legitimate to suggest that arbitration awards that are made
into judgments must be capable of recognition and enforcement under
the Convention. They are enforceable under the New York Conventions
as awards or as judgments "under bilateral conventions or by domestic
law". Furthermore, there is no reason for it to be "desirable" to apply the
Brussels Convention and annul arbitration awards.
(10) The Brussels Convention should also not apply to the issue of the
recognition and enforcement of judgments concerning the existence and
validity of arbitration agreements. That is because there is the danger
that such a judgment may be given in a state other than the place of the
arbitration.
(11) Finally on this aspect of the case he said that the application of
the Brussels Convention to determine jurisdiction would undermine
international arbitration. That is because arbitration needs the assistance
of the Courts of the state where the arbitration is to take place in order to
aid the arbitration process itself. Yet that Court might not have jurisdiction
under the Convention unless a special jurisdiction could be invoked by
art 5(1) or 17. But attempts to use those articles to found a Court's
jurisdiction in relation to arbitration were open to strong objection or
criticism."
…
In our opinion the decisions in The Ivan Zagubanski that both the claim
for a declaration that there was a binding arbitration agreement between
the parties and the claim for an anti-suit injunction were within the
arbitration exception were correct for the reasons given by Aikens J. We
see no distinction in this regard between the facts of that case and this. It
follows that the judge was correct to hold on the facts of the instant case
both that the claims for declarations that N. I. was bound to refer its claim
to arbitration and that the Finnish proceedings were brought in breach of
an agreement to arbitrate and that the claim for an anti-suit injunction
were within the arbitration exception in Artice 1.2(d) of the Regulation.
It follows that the answer to the first question identified in paragraph
21 above, namely whether the court should decline jurisdiction or stay
the proceedings under the Regulation is no, since the Regulation has no
application to the claims brought in the English proceedings. …
…
The question is therefore what is the substance of N. I.'s claim under
section 67 of the Finnish Act. The judge held that the claim is in substance
to enforce against the Club as insurer the contract made by the insured.
He was in our opinion right so to hold for the reasons he gave. In
short, the title to section 67 is the "insured person's entitlement to
compensation under general liability insurance" and the right is defined as
a right "to claim compensation in accordance with the insurance contract
direct from the insurer" in certain defined circumstances. The claim
under the Act is not therefore in any sense independent of the contract
of insurance but under or in accordance with it. In these circumstances it
seems to us that the judge was correct to hold that the issue under the
Act is one of obligation under the contract. The judge noted in passing in
paragraph 18 of his judgment that the Finnish court itself described the
Act as giving the injured party the right to claim compensation "according
to the insurance policy".
In all the circumstance, we agree with the judge that, although the Act
gives the claimant a right of action directly against the insurer without the
need for the formalities of an assignment, what he obtains is essentially a
right to enforce the contract in accordance with its terms. As to the anti-
avoidance provisions in section 3 (quoted above), the judge said this in
paragraph 19:
"The statute renders void those terms of the contract which have the
effect of restricting the right to recovery in a way that is inconsistent with
its terms and those provisions must, of course, be applied in any action
before the Finnish courts. However, that does not in my view detract from
the conclusion that the essential nature of the right created by section 67
is to enforce the terms of the contract."We agree.
For these reasons, which are essentially those of the judge, our answer to
the question posed in paragraph 21(ii) is that the judge was right to hold
that, if N. I. wishes to pursue a claim under the Finnish Act, it is bound to
do so by arbitration in England because the Club is entitled to rely upon
the arbitration clause, just as it is entitled to rely upon any other clause in
the contract to defend the claim.
…The declarations
The declarations granted were set out in paragraphs 2(a) and (b) of the
order as follows:
"(a) It is declared that the Defendant is bound to refer any claims against
the Claimant, in respect of the consignment carried from Calcutta (India)
to Kotka (Finland) and onwards to Moscow (Russia) pursuant to 2 bills
of lading … and CMR International Way Bill ("the consignment"), to
arbitration in accordance with the arbitration clause contained in Section
D, Clause2.1 of [the certificate] ("the arbitration clause").
(b) It is declared that the proceedings commenced by the Defendant
against the Claimant in Kotka, Finland, by summons dated 16 December
2002 ("the Kotka proceedings"), are in breach of the arbitration clause."
It seems to us to follow from the conclusions which we have reached
so far that the Club is entitled to the first of those declarations. For
the reasons given above under the heading 'the arbitration clause', an
application of English conflict of laws principles leads to the conclusion
that, if N. I. wishes to pursue a claim under the section 67 of the Finnish
Act, it must do so in arbitration in London because the Club is entitled to
rely upon the arbitration clause in the Club Rules, which are the very rules
which N. I. relies upon in order to make a claim under the Act: see, in the
context of the Third Parties (Rights Against Insurers) Act 1930, The Padre
Island (No 1).
It is less clear that the Club is entitled to the second declaration. In our
view the Club is not entitled to such a declaration if it means, on its true
construction, that N. I. was in breach of contract in commencing the
Kotka proceedings. As indicated in paragraph 52 above, we do not think
that N. I. was in breach of contract. So, for example, the Club could not
in our view sue N. I. for damages for commencing the proceedings in
Finland. It seems to us that the declaration could be so construed and for
that reason we think it right to set aside that declaration. As we see it,
the Club is sufficiently protected by the first declaration and either does
not need the second or, if it is construed as just suggested, is not entitled
to it.The anti-suit injunction
The judge granted an anti-suit injunction restraining N. I. from
commencing or continuing any claims arising out of the consignment
otherwise than by arbitration in London. As a result N. I. is at present
enjoined from proceeding with the Kotka proceedings, save so far
as necessary to defend the Club's appeal on jurisdiction. The judge
considered this topic in detail between paragraphs 25 and 43 of his
judgment.
The judge referred to what is now a considerable body of authority
to the effect that the court will readily grant an injunction to restrain
proceedings elsewhere in breach of an exclusive jurisdiction clause or
an agreement to arbitrate. The cases include: Aggeliki Charis Compania
Maritima SA v Pagnan SpA. (The 'Angelic Grace') [1995] 1 Lloyd's Rep 87,
Bankers Trust Co v PT Jakarta International Hotels & Development [1999]
1 Lloyd's Rep 910, XL Insurance Ltd v Owens Corning [2000] 2 Lloyd's
Rep 500, Donohoe v Armco Inc [2001] UKHL 64, [2002] 1 Lloyd's Rep
425 and Welex AG v Rosa Maritime Ltd (The 'Epsilon Rosa') [2003] EWCA
Civ 938; [2003] 2 Lloyd's Rep 509.
The rationale of the cases on exclusive jurisdiction clauses can be seen
from these passages in the speeches of Lord Bingham and Lord Hobhouse
in Donohoe v Armco Inc, which were quoted by the judge in paragraphs
27 and 28 of his judgment. Lord Bingham said at page 433 (paragraph
24):
"If contracting parties agree to give a particular court exclusive
jurisdiction to rule on claims between those parties, and a claim falling
within the scope of the agreement is made in proceedings in a forum
other than that which the parties have agreed, the English court
will ordinarily exercise its discretion (whether by granting a stay of
proceedings in England, or by restraining the prosecution of proceedings
in the non-contractual forum abroad, or by such other procedural order
as is appropriate in the circumstances) to secure compliance with the
contractual bargain, unless the party suing in the non-contractual forum
(the burden being on him) can show strong reasons for suing in that
forum. I use the word "ordinarily" to recognise that where an exercise
of discretion is called for there can be no absolute or inflexible rule
governing that exercise, and also that a party may lose his claim to
equitable relief by dilatoriness or other unconscionable conduct. But
the general rule is clear: where parties have bound themselves by an
exclusive jurisdiction clause effect should ordinarily be given to that
obligation in the absence of strong reasons for departing from it. Whether
a party can show strong reasons, sufficient to displace the other party's
prima facie entitlement to enforce the contractual bargain, will depend on
all the facts and circumstances of the particular case."…
In the exclusive jurisdiction clause type of case like Gasser, there is
as we see it no room for an anti-suit injunction because the court first
seised must decide issues of jurisdiction including the jurisdiction of
the court second seised. Although it was not said that Article 27 or 28
applied, Turner v Grovit was also a case in which both sets of proceedings
were within the Convention. The position is different in a case where
one set of proceedings is outside the Convention, as here. In a case
where two parties to a contract which includes an arbitration clause
bring proceedings in different contracting states and there is an issue
as to whether one of those sets of proceedings is within the arbitration
exception and thus outside the Convention, we have already expressed
our view that the court in which that dispute arises has jurisdiction to
determine that dispute and that Articles 27 and 28 do not apply to them.
If that were wrong, the same principles would apply as in Gasser and no
injunction could be granted.
However, if that view is correct, the underlying rationale of Gasser
does not apply directly to such a case. Moreover, the considerations in
paragraphs 26 to 30 of the judgment in Turner v Grovit quoted above do
not seem to us to apply directly. Thus, as we see it, there is nothing in
the Convention to prevent the courts of a contracting state from granting
an injunction to restrain a claimant from beginning proceedings in a
contracting state which would be in breach of an arbitration clause. As
the ECJ put it in paragraph 18 of its judgment in The Atlantic Emperor
(quoted in paragraph 45 above), the contracting parties "intended to
exclude arbitration in its entirety", so that arbitration must be treated as
entirely outside the Convention.
Once it is held (as it was for example in The Ivan Zagubanski) that
proceedings in the court of a contracting state for (i) a declaration
that arbitration clauses bound the defendants and (ii) an injunction to
restrain proceedings in the court of another contracting state in breach
(or threatened breach) of binding arbitration agreements fall within the
exception in Article 1.2(d) of the Regulation and are thus outside the
Convention so that Articles 27 and 28 do not apply to them, the question
arises whether, in the light of the underlying reasoning in Turner v Grovit,
an injunction should not be granted restraining the person in breach from
bringing such proceedings.
The competing considerations seem to us to be these. It might be said
in the light of the reasoning in Turner v Grovit that an injunction should
never be granted to restrain a claimant from proceeding in the courts
of a contracting state in breach of an English arbitration clause because
to do so interferes with the exercise by that court of the jurisdiction
conferred on it by the Regulation. There is certainly some support for
that view in Turner v Grovit, with its emphasis on mutual trust and the
opinion expressed in paragraphs 27 and 28 (quoted above) that such an
injunction interferes with the jurisdiction of the foreign court and that
such interference cannot be justified by the fact that it is only indirect
and is intended to prevent an abuse of process by the defendant in the
proceedings in the forum state.
The question is whether that view should be preferred in this context
to what has come to be the settled approach in England to proceedings
brought in breach of an arbitration clause in a contract between the
parties which was set out by the judge and is referred to above. In
this regard the approach to actions in breach of contracts containing
arbitration clauses is most clearly stated in the judgments of Rix J at
first instance and in the judgments of Leggatt, Millett and Neill LJJ in
this court in The Angelic Grace [1994] 1 Lloyd's Rep 168 and [1995] 1
Lloyd's Rep 87. It may be recalled that, although The Angelic Grace was
itself concerned with an arbitration clause, by the time the case reached
this court, the court had recently considered the correct approach to the
grant of anti-suit injunctions in cases where proceedings were brought in
breach of an exclusive jurisdiction clause in Continental Bank NA v Aeakos
Compania Naviera SA [1994] 1 WLR.588. It was in those circumstances
that in The Angelic Grace the court discussed both arbitration clauses and
exclusive jurisdiction clauses.
The essential reasoning of the all judgments, expressed in robust form,
can be seen in these paragraphs in the judgment of Millett LJ at page 96:
"In my judgment, the time has come to lay aside the ritual incantation
that this is a jurisdiction which should only be exercised sparingly and
with great caution. There have been many statements of great authority
warning of the danger of giving an appearance of undue interference with
the proceedings of a foreign Court. Such sensitivity to the feelings of a
foreign Court has much to commend it where the injunction is sought
on the ground of forum non conveniens or on the general ground that
the foreign proceedings are vexatious or oppressive but where no breach
of contract is involved. In the former case, great care may be needed
to avoid casting doubt on the fairness or adequacy of the procedures of
the foreign Court. In the latter case, the question whether proceedings
are vexatious or oppressive is primarily a matter for the Court before
which they are pending. But in my judgment there is no good reason for
diffidence in granting an injunction to restrain foreign proceedings on the
clear and simple ground that the defendant has promised not to bring
them.
The Courts in countries like Italy, which is a party to the Brussels and
Lugano Conventions as well as the New York Convention, are accustomed
to the concept that they may be under a duty to decline jurisdiction in
a particular case because of the existence of an exclusive jurisdiction or
arbitration clause. I cannot accept the proposition that any Court would
be offended by the grant of an injunction to restrain a party from invoking
a jurisdiction which he had promised not to invoke and which it was its
own duty to decline.
….
In my judgment, where an injunction is sought to restrain a party from
proceeding in a foreign Court in breach of an arbitration agreement
governed by English law, the English Court need feel no diffidence in
granting the injunction, provided that it is sought promptly and before
the foreign proceedings are too far advanced. I see no difference in
principle between an injunction to restrain proceedings in breach of
an arbitration clause and one to restrain proceedings in breach of an
exclusive jurisdiction clause as in Continental Bank N.A. v. Aeakos
Compania Naviera S.A., [1994] 1 W.L.R. 588. The justification for the
grant of the injunction in either case is that without it the plaintiff will
be deprived of its contractual rights in a situation in which damages
are manifestly an inadequate remedy. The jurisdiction, is, of course,
discretionary and is not exercised as a matter of course, but good reason
needs to be shown why it should not be exercised in any given case."
In considering the propositions advanced by Millett LJ in those
paragraphs, it is important to note that, as we have seen from the
decision of the ECJ in Gasser, so far as proceedings within the Regulation
are concerned, the approach to contracts containing exclusive jurisdiction
clauses is not now the same as that advocated by the English courts. That
is because the court first seised must decide whether any relevant court,
including the court second seised, has jurisdiction under an exclusive
jurisdiction clause within Article 23, so that there is no room for an anti-
suit injunction. However, we see no reason why the principles in The
Angelic Grace should not continue to apply to the circumstances in which
claimants may be restrained from bringing proceedings in courts of non-
contracting states in breach of agreements to arbitrate.
As to proceedings brought in the courts of a contracting state, in the first
of the paragraphs quoted above Millett LJ in our view drew an important
distinction between proceedings brought in breach of an arbitration clause
and proceedings said to be vexatious or oppressive but where no breach
of contract is involved. He said that the question whether proceedings
are vexatious or oppressive was primarily for the court before which it
was pending, whereas in the case of proceedings brought in breach of
contract there was no good reason for diffidence in granting an injunction
on the clear and simple ground that the claimant had promised not to
bring them.
It appears to us that that distinction is consistent with the reasoning in
Turner v Grovit, which was of course a case in which the ground on which
the injunction had been granted was that the proceedings in Spain were
vexatious and oppressive. There is nothing in Turner v Grovit which in our
opinion contradicts the reasoning in the second or third of the paragraphs
quoted from the judgment of Millett LJ, in so far as it relates to arbitration
clauses. As to the second paragraph, there is no reason why any court
should be offended by an injunction granted to restrain a party from
invoking a jurisdiction in breach of a contractual promise that the dispute
would be referred to arbitration in England. The English court would not
be offended if a claimant were enjoined from commencing or continuing
proceedings in England in breach of an agreement to arbitrate in another
contracting state. As to the third paragraph, it remains the position that
damages would be an inadequate remedy.
For these reasons we agree with the conclusions expressed by the
judge in paragraph 34 of his judgment (quoted in paragraph 72 above)
which seem to us to remain applicable in a case of this kind. We do not
accept Mr Smith's submission that the court should not grant an anti-
suit injunction in a case where a party to an arbitration agreement begins
proceedings in the courts of a contracting state in breach of an arbitration
clause in a contract.
That is not, however, this case. We therefore turn finally to Mr Smith's
submission that the judge should not have granted an injunction in this
case, where the highest that it can be put against N. I. is that the only
reason that it can be said in England that N. I. should not be permitted to
proceed in Finland is that, because of English principles of conflict of laws,
the claim is classified as a claim under the contract so that N. I. is bound
to bring any claim against the Club in arbitration in London. Mr Smith
submitted that in these circumstances there is no parity of reasoning
between this case and the principles relied upon by the judge and set out
above.
We accept that submission. This claim is brought in Finland under a
Finnish statute conferring rights on third parties against liability insurers
in circumstances in which the insured is insolvent. The statute was no
doubt passed because, as a matter of public policy in Finland, it was
thought that liability insurers should be directly liable to third parties who
had suffered loss in respect of which the insured was liable. The public
policy behind the Finnish Act was the same as or very similar to the public
policy behind the Third Parties (Rights Against Insurers) Act 1930. It
appears that the only difference of importance between them is that in
England the anti-avoidance provision does not defeat the pay to be paid
clause, whereas it may be that section 3 of the Finnish Act will do so,
although it is right to say that that is a matter yet to be determined by
the Finnish courts. It may also be observed that by section 3(3) section
3(1) and (2) do not apply to "marine or transport insurance taken out by
businesses". There is, as we understand it, an issue between the parties
as to whether the liability insurance provided by the Club is within the
exception. The court in Kotka appears to have been of the view that it was
not, but was liability insurance outside the exception. However, it is not
entirely clear to us whether the court has made a final decision to that
effect in its decision on jurisdiction.
The question is whether in all the circumstances the English court should
grant an injunction restraining N. I. from bringing its claim under the
Finnish Act in Finland. It is always a strong step to take to prevent a
person from commencing proceedings in the courts of a contracting
state which has jurisdiction to entertain them. The ECJ has either held
or in effect held that no such injunction should be granted in the case
of an exclusive jurisdiction clause (Gasser) or on the ground that the
proceedings are vexatious and oppressive (Turner v Grovit). N. I. is
not in breach of contract in bringing these proceedings in Finland, so
that the principles in cases like The Angelic Grace do not apply directly.
In this regard we accept Mr Smith's submission that, while such cases
may provide some assistance by analogy, they do not apply by parity of
reasoning, as the judge thought. None of the cases to which we were
referred, including Akai, was considering a case quite like this.
Further, this is not a case in which it can fairly be said that the
proceedings in Finland are vexatious or oppressive. N. I. is simply
proceeding in Finland under a Finnish statute which gives it the right to do
so. The question is whether the English court should restrain it from doing
so.
Given our view that the principles in the decided cases cannot be applied
by parity of reasoning and given the further fact that the judge did not
have the assistance of either Gasser or Turner v Grovit, both of which
have made an important contribution to the jurisprudence in this area,
this court is in our opinion free to form its own conclusion on the question
whether to grant an anti-suit injunction on the facts of this case. We have
reached the conclusion that, having regard to all the circumstances of
the case, including those set out above and the reasoning underlying the
approach of the ECJ in Turner v Grovit, this was not a case in which, in
the language of section 37(1) of the Supreme Court Act 1981, it was or
would be just and convenient to grant an injunction restraining N. I. from
pursuing a claim under the Finnish Act in Finland.CONCLUSIONS
For the reasons set out above, we answer the questions posed in
paragraph 21 above as follows:
i) No, the court should not decline jurisdiction or stay the proceedings
under the Regulation (see paragraphs 22 to 51). In particular, the
question whether the claim in England was within the arbitration
exception was not a matter for the Finnish court as the court first seised
(paragraphs 22 to 37) and the judge was right to hold that the claim
in England was within the arbitration exception and thus outside the
Regulation (paragraphs 38 to 51).ii) Yes, the judge was right to hold that,
under English principles of conflicts of laws, N. I. was bound to pursue its
claim under the Finnish Act by arbitration in England (paragraphs 52 to
60).
iii) No, the permission to serve the claim form should not be set aside
and the proceedings should not be stayed as a matter of discretion
(paragraphs 61 and 62).
iv) The judge was right to grant the first declaration, namely that N.
I. was bound to refer any claims against the Club in respect of the
consignment to arbitration in England. However, the second declaration,
namely that the Kotka proceedings, were and are in breach of the
arbitration clause should be set aside because N. I. was not in breach of
contract in bringing them (paragraphs 63 to 65).
v) No, the judge should not have granted the anti-suit injunction, which
should be set aside (paragraphs 66 to 97)
It follows that the appeal is allowed in part. If there should be questions
as to the recognition or enforcement of judgments under Articles 32 to
36 of the Regulation, they must be determined when and if they arise. …
ORDER: Appeal allowed in part; agreed order; respondent to have 50% of
costs in court below; appellant to have 25% of costs in appeal.