Informative Memo – Marine
On October 06, 2023, the High Court of Justice of England and Wales issued a judgment on Case No. CL-2023-000050, between The London Steam-Ship Owners’ Mutual Insurance Association Limited (hereinafter “the Club”), and The Kingdom of Spain (hereinafter “Spain”).
The main discussion in the case revolves around the Club’s appeal against the Registration Order in Claim No. CL-2019-000518 on the grounds that Spain’s judgment is irreconcilable with the English Judgment and in respect of Spain’s challenges to Sir Peter Gross’ First and Second Partial Awards, pursuant to Articles 67, 68 and 69 of the Arbitration Act 1996 (“AA 1996”), in Claim No. CL-2023-000050.
I. Background
In November 2002, the MT/Prestige (hereinafter, “Vessel”) suffered damage from a storm surge and subsequently sank, causing an oil spill that led to significant pollution damage to Spanish and French coastlines. In this regard, several criminal and civil proceedings were initiated against the master, officers, owners and managers of the Vessel and the Vessel’s P&I Club. In addition, the Club was sued pursuant to the International Convention on Civil Liability for Oil Pollution Damage 1992 or Civil Liability Convention (hereinafter, “Convention”).
For its part, the Club initiated separate arbitrations against Spain and France, in which Mr. Alistair Schaff KC was appointed as sole arbitrator. Spain and French State did not participate in these arbitrations. (hereinafter, “the Schaff Arbitration”). By Award dates 13 February 2013 (hereinafter, “Award”)., the arbitrator decided that i) Spain was bound by the arbitration clause contained in the Club’s Rules and its claims must be referred to arbitration in London; ii) Pursuant to the ‘pay to be paid’ clause in the Club’s Rules, the Club was not liable to Spain in respect of such claims in the absence of prior payment to Spain by the Owners and/or Managers of the vessel of the full amount of any insured liability.
The Club then sought to enforce the Schaff Award as a judgment, and to enter judgment in terms of the Award pursuant to s. 66 AA 1996. Consequently, Spain requested a declaration that the arbitrator had no jurisdiction to make the Award and claimed Spain’s immunity from the Tribunal’s proceedings in relation to the claim of s. 66 AA 1996.
Meanwhile, the Spanish Supreme Court convicted the master of the offence of serious negligence against the environment and found civil liability on the part of the master, the owners and the Club subject to the global limit of US$1 billion in the insurance contract.
On 26 March 2019 Spain issued a CPR Part 23 application seeking to enforce the Spanish Judgment pursuant to Article 43 of Regulation (EC) No. 44/2001. The Club appealed against the Registration Order pursuant to Article 45 of the Regulation (hereinafter, “Club’s Appeal”).
By ex parte orders of Robin Knowles J dated 8 April 2019, the Club was given permission to serve the Arbitration Claim Form on Spain out of the jurisdiction. In opposition, Spain requested its annulment on the grounds that (1) Spain was immune from all suits brought by the Club pursuant to s. 1 SIA, alternatively (2) the Court had no jurisdiction to hear the claims set out in the Arbitration Claim Form and the s. 18 AA 1996 application. By judgment dated 18 June 2020, Henshaw J decided that Spain had no immunity, by reason of s. 9(1) SIA, consequently the application should be dismissed. Also, Henshaw J proceeded to appoint Sir Peter Gross as arbitrator pursuant to s. 18 AA 1996.
On January 6, 2023, Sir Peter Gross issued his First Partial Award and on March 22, 2023, he issued his Second Partial Award.
By an Arbitration Claim Form dated 3 February 2023, Spain brought a number of challenges against the Gross First Award under ss. 67, 68 and 69 AA 1996.
II. Judgement
With respect to the Club’s appeal argument concerning that the Spanish Judgment should not be enforced by the reason of irreconcilability within Article 34(3) of the Regulation the Judge state that the English s. 66 Judgments and the Spanish Judgment are mutually exclusive. Under the English s. 66 Judgments, as owners have not paid Spain, the Club is not liable to Spain, by contrast, the Spanish Judgment holds that the Club is liable to Spain, therefore those two positions cannot co-exist in the English legal order. Consequently, the Spanish Judgment is irreconcilable with the English s. 66 Judgments. Therefore, the Judge conclude that the Club has been found liable without regard to the issue of whether there was prior payment by the owners.
At the December 2020 hearing, Spain presented four arguments to contradict the position on the irreconcilability of the judgments, which are detailed below:
i) The Solo Point: Spain argued that the English judgments 66 were not relevant “local” judgments for the purpose of Article 34(3) because they were not judgments of a judicial body of a contracting state deciding on its own authority on the issues between the parties supported by the decision Solo Kleinmotoren GmbH v Emilio Boch.
In this regard, the CJEU state that, “a judgment entered into in the terms of an arbitral award is capable of constituting a ‘judgment’ within the meaning of Article 34”, therefore, the Judge conclude that the nature of a judgment under s. 66 AA, as being one which is in the terms of an arbitral award, does not take it outside the ambit of ‘judgments’ which may prevent the recognition, in a Member State, of a judgment given by a court in another Member State if those two judgments are irreconcilable. Consequently, for the Judge this point is incorrect.
ii) The Material Scope Point: Spain argued that The Article 34(3) was not applicable because the English s. 66 Judgments are non-Regulation judgments. The English proceedings, and the resulting English s. 66 Judgments, fell within the arbitration exception to the applicability of the Regulation enshrined in Article 1(2)(d).
The Judge give reasons to state that the ‘home’ judgment referred to in Article 34(3) need not be one within the subject-matter scope of the Regulation: i) the promotion of the objectives of the Regulation not prevails over reasons deriving from disputes outside the Regulation, ii) In the case of a domestic award, the award would not have the status of a New York Convention award nor, on Spain’s case, would the local judgment enforcing it give protection under Article 34(3), iii) The correct interpretation of the judgment in Hoffmann v Krieg is that is a case which had considered cases of irreconcilability between judgments covered by the Convention and judgments outside its scope.
Therefore, the exclusion of a matter from the scope of Regulation does not preclude a judgment relating to that matter from coming within the scope of Article 34(3) of that regulation and, accordingly, preventing the recognition of a judgment given in another Member State with which it is irreconcilable’. Consequently, the Judge conclude that the material scope point is incorrect.
iii) Mutual Trust: Spain argued that the English s. 66 Judgments were contrary to the principle of mutual trust, and impaired the effectiveness and objectives of the Regulation because they were an attempt to stymie the jurisdiction of another Member State.
For the Judge the Regulation, however, does not prohibit all judicial activity which might create or involve a risk of creating a judgment inconsistent with judgments from other Member States. The possibility of conflicting judgments is inherent in the existence of the subject matter limitations of the Regulation; and in particular the possibility of conflicting judgments is inherent in the fact that arbitration is excluded from the Regulation.
Therefore, the English s.66 Judgments did not amount to an assessment of the appropriateness of Spain having brought proceedings in the Spanish Courts; they constituted an assessment, by the English court, as the court of the seat, as to whether the arbitration agreement was binding. In those circumstances, the Judge considered that the making of an order under s. 66 AA 1996 did not constitute a breach of the principle of mutual trust.
iv) Argument based on the insurance provisions in Section 3 of Chapter II: Spain argued that, according to Article 66, the English s. 66 Judgments are not an irreconcilable judgment within Article 34(3) because their making conflicted with the special insurance provisions in Section 3 of Chapter II of the Regulation.
The Judge state that the Regulation’s insurance provisions were not relevant to the s. 66 AA 1996 proceedings. In addition, the Judge concluded that there is no conflict between the English s. 66 Judgments and the insurance provisions of the Regulation, because the s. 66 AA 1996 proceedings were arbitration proceedings which fell within the exclusion of arbitration in Article 1(2)(d). For the Judge it is clear that Spain submitted to the earlier s. 66 AA 1996 proceedings, thus the English courts therefore had jurisdiction pursuant to Article 24 of the Regulation.
On the other hand, the Club questioned the CJEU judgment concerning the following points:
i) Res judicata ground: The Club pointed out that the CJEU judgment was based on the conclusion that Article 66 could not and should not render judgments. However, English courts have already ruled that judgments could and should be rendered, establishing a binding relationship between the Club and Spain.
It was accordingly res judicata that the English s. 66 Judgments were properly given, even if it meant that the judgments were given in circumstances where the English court could not itself have given judgment under the Regulation.
Therefore, the Judge conclude that there is an issue estoppel to the effect that the jurisdiction-allocation provisions of the Regulation, and in particular its lis pendens and insurance provisions, were no good reason for the English s. 66 Judgments not to have been entered because the Regulation is not applicable to arbitration, and this prevents Spain from contending to the contrary. The High Court can and should give effect to that issue estoppel, notwithstanding what may have been suggested in paragraphs [54]-[73] of the CJEU Judgment.
ii) The Club’s jurisdiction ground: The Club argued that the CJEU exceeded its jurisdiction or competence in one or more fundamental respects, namely in answering questions which were not referred to it, in applying to the facts.
In Judge opinion the CJEU gave answers to questions which had not been referred to it, and which the High Court had refused to refer. In doing so, it trespassed on the facts of the case.
In addition, the Judge considered that there was an express refusal, or at the least an implicit refusal, to make a reference to the CJEU of questions in relation to lis pendens or the insurance provisions, or of any other question which Spain had proposed apart from those which were actually referred. For these reasons, the Judge does not consider that this Court is bound by paragraphs [54]-[73] of the CJEU Judgment.
iii) The Club’s procedural fairness ground: The Club was not provided with fair notice of nor the opportunity to address the CJEU upon the lines of argument which it adopted in paragraphs [54] to [73] of the CJEU Judgment. However, considering that the Judge concluded that these paragraphs were not binding, it is not necessary to pronounce on this aspect.
iv) The Club’s invalid Reference ground: The Club argued that the CJEU Judgment delivered before the Reference could be withdrawn was not binding under the WA. The Judge concluded that the reference to a ‘request’ for a preliminary reference in Article 86 WA can be read as confined to valid requests, in the sense of requests where there has not been a decision of an appellate court setting aside the order for reference. However, there will have been a ‘request’ if this Court has made a request, unless and until that request is withdrawn by this High Court, that did not happen.
In addition, the Club contended that it would be manifestly contrary to English public policy to recognise and enforce the Spanish Judgment and that Article 34(1) applies. The first aspect to consider is whether the principle of res judicata is a matter of public policy in England and Wales for the purposes of Article 34(1). The Judge state that the rule as to res judicata is a matter of public policy. Thus, res judicata, though it may operate via an estoppel, is a rule of substantive law, which is concerned with the prevention of duplicative litigation and the abuse of the process of the court and ensuring legal certainty. And those objectives are matters of public policy. Therefore, the Judge conclude that res judicata is a relevant public policy for the purposes of Article 34(1).
To recognise that a foreign judgment should not be enforced if inconsistent with a domestic arbitration award which has created a res judicata, by application of Article 34(1), would avoid an inconsistency between the effect of New York Convention and domestic awards. Therefore, that the Club could rely on the public policy of res judicata to resist enforcement of the Spanish Judgment as being inconsistent with the Award.
Finally, regarding the matter if the arbitrator has the power to award an injunction, in Judge opinion, the effect of s. 13 SIA is that the court does not have jurisdiction, and thus does not have the ‘power’, to grant an injunction against a State in the absence of its consent. As a result, no power to grant an injunction against a State in the absence of its consent is conferred on an arbitrator by virtue of s. 48(5) AA 1996. Consequently, the Judge state that if the court lacks a power to make an order against a party to court proceedings because of an immunity which that party and other entities of its nature has, then s. 48(5) AA 1996 confers no power on an arbitrator to make such an order against such a party. For these reasons, the Judge conclude that Sir Peter Gross was wrong to consider that he had the power to grant an injunction against Spain.
The Judge concluded that a court could not grant damages in lieu of an injunction under s. 50 SCA. That being English law, it follows that an arbitrator, who has no power to grant an injunction, equally cannot grant damages in lieu of an injunction. To that effect, that equitable compensation should be available, and that its availability should not depend on whether an injunction can be granted.
For all the foregoing reasons, the Judge ruled as follows:
1. Grant the Club’s Appeal against the Registration Order, on the grounds (1) that the Spanish Judgment is irreconcilable with the English s. 66 Judgments, and (2) if that were wrong, recognition of the Spanish Judgment would be contrary to principles of English public policy relating to res judicata by reason of the prior Schaff Award.
2. The first aspect of Spain’s challenge to the Gross First Award under s. 67 AA 1996 and the appeal under s. 69 AA 1996 are dismissed.
3. Permission under s. 69 S.A. 1996 is granted for Sapin to appeal.
4. The Judge conclude that Sir Peter Gross did not have jurisdiction to grant an injunction against Spain and could not grant damages in lieu of an injunction.
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