The new impact of the Brussels I regulation on arbitrators: analysis of the latest ruling of the European Court of Justice
In a judgment rendered on June 20, 2022, the Grand Chamber of the European Court of Justice (ECJ) ruled that a judgment rendered by a Court of a Member State in the terms of an arbitral award may in principle serve as a basis for refusing to recognize a subsequent irreconcilable judgment of another Member State. Nevertheless, this rule does not apply where the recognition decision leads to a result which a Court of a Member State could not have achieved directly without violating the fundamental provisions and objectives of the famous Brussels I Regulation. If at this stage this decision seems convoluted, let us detail the stakes of this ruling which will certainly be talked about among scholars and practitioners of law.
A look at the facts of the case
Twenty years ago, in the Atlantic Ocean bordering Spain, a tanker called the Prestige sank to the bottom, causing an oil spill and extensive damage to the Spanish coast.
The insurer of the Prestige and its owners was the London Steam-Ship Owners' Mutual Association Limited. The insurance contract between the owners and the insurer included an arbitration clause, designating London as the seat of arbitration. In 2010, Spain, a direct victim of the consequences of the shipwreck, brought an action against the insurer before its national courts. 2 years later, the insurer tried to avoid these proceedings anchored in Spain by filing a claim before the arbitration court in London. The insurer's goal was to obtain a decision compelling Spain to file its claim before the London arbitral tribunal. In February 2013, the London arbitral tribunal ruled that Spain's claim was indeed contractual under English law, meaning that Spain had to abide by the arbitration clause in the insurance contract. A month after that, an English domestic court recognized that award in the United Kingdom, resulting in the "2013 Recognition Judgment." In 2016, the Spanish courts ruled that the insurer was liable to Spain (the "2016 Recognition Judgment"). In 2019 Spain filed a claim before English courts to have the 2016 liability judgment recognized in the United Kingdom.
Just days before the Brexit, the English High Court has referred a question to the CJEU for a preliminary ruling on the irreconcilability between the 2013 recognition judgment and the 2016 liability judgment. The English High Court questioned the meaning of the word "judgment" in the 2016 liability judgment. Indeed, the consequences of this have a non-negligible impact, since if this judgment is to be understood in the sense of "judgment" contained in Article 34(3) of the Brussels I Regulation, this could serve as a basis for refusing to recognise the 2016 liability judgment, as this article 34 (3) stipulates that a judgment will not be recognised if it is irreconcilable with a judgment given between the same parties in the requested Member State.
Alternatively, if the Court finds that this is not the case, the English High Court bases its quest for a possible refusal (to recognize the 2016 judgment) on Article 34(1) of the Brussels I Regulation, considering that such recognition would be contrary to the res judicata effect of the 2013 recognition judgment and therefore contrary to English public policy.
Decision of the ECJ
Article 1(2)(d) of the Brussels I Regulation provides for a general exclusion from arbitration. Notwithstanding this, the Court decided in its judgment C-700/20 of 20 June 2022 that a judgment given by a court of a Member State in the terms of an arbitral award should always be understood as a "judgment" within the meaning of Article 34(3) of the Brussels I Regulation. If we stop here, the consequence is that the English High Court could well refuse to recognise a later inconsistent judgment. However, the Court goes further in its reasoning and considers that this rule does not apply if the recognition decision leads to the result of the award, which could not have been achieved by a national court of a Member State without being contrary to the fundamental provisions and objectives of the Brussels I Regulation. In casu, the CJEU observed that the award and thus the 2013 recognition judgment violated the fundamental provisions and objectives of the Brussels I Regulation on two levels.
Firstly, it is worth recalling that the arbitration was imposed on Spain, as it had not consented to it. This violates the relative effect of an arbitration clause in the insurance contract, because Spain was not party to the said insurance contract.
Secondly, the English High Court failed to take into account the earlier proceedings already pending in Spain, thus violating the lis pendens rule contained in Article 27(1) of the Brussels I Regulation.
As a result, the 2013 recognition judgment cannot be used as a basis for refusing to recognise the 2016 liability judgment under Article 34(3) of the Brussels I Regulation.
Furthermore, responding to the English court's argument that it would be possible to refuse the application of the 2016 judgment on the ground of public policy (as this would undermine the res judicata effect of the 2013 recognition judgment under Article 34(1) of the Brussels I Regulation), the ECJ recalls that the so-called public policy clause only applies in exceptional cases, and not when it comes to the question of whether or not a foreign judgment is reconcilable with a national judgment.
Final considerations and prospects for future discussion
First of all, it should be pointed out that this judgment under the Brussels I Regulation is no less relevant under the recast Brussels I Regulation (see para. 42).
As far as arbitration is concerned, this is not the first time that the CJEU has made a decisive move. After the landmark judgments of West Tankers (C-185/07), Achmea (C-284/16) and Komstroy (C-741/19), the ECJ is once again pushing back the boundaries of permissibility in international arbitration. This decision will undoubtedly be discussed vigorously among lawyers, academics and other practitioners of international arbitration.
At this point, several observations can already be made, which will surely serve as fuel for future discussions surrounding this decision.
The first observation concerns the scope of application of the judgment. According to its wording, the latter applies only to "a decision rendered by a court of a Member State pursuant to an arbitral award (...) leading to a result equivalent to that of that award". One might therefore be led to believe that it applies only if and when the recognition decision "is made in the terms of the award" (see section 66(2) of the UK Arbitration Act 1996), i.e. when the recognition decision rules as the award ruled, adopting the reasoning of the award in full. Although this was the case here, at this stage it is not clear whether a recognition judgment which merely recognised the judgment, without repeating the decision of the award, would be subject to the same limitations. And in the negative, why wouldn’t it be? On what basis?
A second observation that may start debate concerns the encouragement of arbitrators to take into account the "fundamental provisions and purpose" of the Brussels I Regulation (recast), in order to ensure full recognition of their award in a Member State. On paper this may appear simple, but what if it is incompatible with the expressed will of the parties to the arbitration clause? Furthermore, it is also questionable whether the ECJ intended to encompass all "provisions" of the Brussels I Regulation (recast) and whether the principle of the judgment would apply to awards made by arbitral tribunals sitting in non-Member States.
Finally, it must be noted that the lis pendens rule is used in a vague way here. Indeed, on the basis of the above, arbitral tribunals could now consider staying the proceedings if a national court of a Member State is already seized of a case involving the same cause of action and opposing the same parties. It is therefore legitimate to wonder whether the national courts of a Member State should now apply the lis pendens rule and stay the proceedings if an arbitral tribunal has been seized first.
It is therefore with an open ear that we will continue to follow the jurisprudential developments of the CJEU in the field of arbitration, shaping the current legal landscape in this area.
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