In the battle over the priority and recognition of cross-border judgments and arbitral awards, the Court of Justice of the European Union provided clarity in its June ruling in London Steam-Ship Owners’ Mutual Insurance Association Ltd. v. Kingdom of Spain.[1]

The decision has some implications for the enforcement of arbitration awards in the U.K.

This is the latest in the long line of judgments relating to the sinking of the oil tanker MV Prestige in 2002 off the Atlantic coast of Spain, which resulted in oil spilling from its 77,000-ton hold causing extensive environmental damage to the coasts of France and Spain.

Proceedings were issued in 2012 in a Spanish court against the ship’s master, owners, and insurers, London Steam-Ship Owners’ Mutual Insurance Association Limited, also known as the London P&I Club.

The club maintained that the civil claim against it in the Spanish courts breached its insurance contract, which contained an arbitration clause requiring all claims to be brought in London. The contract also contained a “pay to be paid” clause, which held that any liability of the club was contingent on compensation first being made by the holders of the insurance policy.

In 2013, the arbitral tribunal in London found for the club on the basis that the “pay to be paid” clause was quite clear, and the club succeeded in its application under the U.K. Arbitration Act 1996. An enforcement order was made by the English Commercial Court, King’s Bench Division, in March 2019 for approximately €2.3 billion ($2.58 million in 2019) with the club’s liability limited under the insurance contract to €885 million ($957.6 million).

Spain then asked the High Court of Justice of England and Wales to enforce the Spanish ruling and got its backing in May 2019. The London P&I Club appealed, prompting the High Court in 2020 to seek guidance from the CJEU.

2001 Brussels Regulation

The 2001 Brussels Regulation[2] governs the allocation of jurisdiction and the reciprocal enforcement of judgments between EU member states, as well as between EU members and Denmark.

It provides that a judgment given in a member state shall be recognized in other EU member states without any special procedure being required. Judgment is defined as “any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution.”

Under Article 34(3) of the regulation, a judgment shall not be recognized if it is irreconcilable with a judgment given in a dispute between the same parties in the member state in which recognition is sought.

Reference to the CJEU

In December 2020, shortly before the end of the Brexit transition period, the English High Court referred the matter to the CJEU for a preliminary ruling on two principal questions.

• Is a judgment entered in the terms of an award under Section 66 of the U.K. Arbitration Act 1996, i.e., the March 2019 Commercial Court judgment, capable of constituting a relevant “judgment” of the member state in which recognition is sought for the purposes of Article 34(3) of the 2001 Brussels Regulation?
• In the alternative, can English courts refuse recognition of the Spanish judgment, if recognition would be contrary to public policy on the grounds that it would violate the principle of res judicata, i.e., a matter that has already been adjudicated by another court and may not be pursued elsewhere?

On appeal, the Court of Appeal of England and Wales decided that the High Court was wrong to seek the guidance from the CJEU. However, as the request was already made, the CJEU still opined on the matter.

Opinion of the CJEU

The CJEU held that a judgment entered in the terms of an award, such as the Section 66 judgment, is caught by the arbitration exception and cannot be enforced in another member state under the 2001 Brussels Regulation.

However, the situation in this case was different, as it concerned the effect of a judgment entered in the terms of an award where it was incompatible with a judgment from another member state, which was sought to be recognized and enforced in England under the regulation.

In relation to the first and second questions, the CJEU noted that Article 1(2)(d) of the 2001 Brussels Regulation excludes arbitration from the scope of the regulation. That exclusion covers arbitration in its entirety, including proceedings brought before national courts. Proceedings for the enforcement of an arbitration award are therefore not covered by the regulation and cannot enjoy mutual recognition between EU member states.

A judgment concerning the recognition or enforcement of an arbitral award is capable of being regarded as a judgment within the meaning of Article 34(3) of the 2001 Brussels Regulation because the broad definition of judgment in Article 32 covers any judgment given by a court of a member state.

This is particularly so as the English Commercial Court had heard arguments and decided on substantive issues, such as the tribunal’s jurisdiction, public policy issues and whether it was in the interests of justice to enter a judgment.

However, taking a purposive approach, the CJEU held that such a judgment can only produce the effect of Article 34(3), i.e., preventing recognition of a judgment given in another member state with which it is irreconcilable, if this would not infringe the right to an effective remedy guaranteed in Article 47 of the Charter of Fundamental Rights of the European Union and would enable the free movement of judgments under conditions at least as favorable as those under the 2001 Brussels Regulation..

Finally, in relation to the second question, the CJEU reiterated that the public policy exception must always be interpreted strictly where it interferes with the fundamental objectives of the regulation.

Comment

The CJEU’s decision indicates that domestic civil court judgments will be given precedence over judgments enforcing arbitral awards. However, this is subject to two exceptions.

First, it only applies to domestic arbitral awards. The Brussels Regulation recognizes that it does not affect the application of the various conventions that provide for recognition of foreign awards, such as the New York Convention.

It also only prevents the enforcement of domestic awards if they violate the fundamental principles and objectives of the regulation. If the English judgment were in terms of a foreign award, the regulation would not have been applicable.

Second, the ruling applies only to pre-Brexit transition awards. This is contingent on the U.K. Supreme Court determining whether the Commercial Court was correct in referring the questions to the CJEU.

It would be helpful, if, in addition to that decision, the U.K. Supreme Court considers the implications of the possible different treatment of domestic and foreign awards.

It will be interesting to see if the Supreme Court confirms this principle when hearing the appeal, so watch this space.

This article was first published in October 2022 by Law360.