In a judgment dated 25 April 2012 (Lombard North Central plc and another v GATX Corporation [2012] EWHC 1067 (Comm)), Judge Andrew Smith of the English High Court (Commercial Court) underlined the potential risks that might arise from arbitration clauses which have a limited scope. Although this judgment is relevant to a number of different procedural and substantive aspects (including the statutory construction of the arbitration exception as enshrined in English law (Section 9 of the Arbitration Act 1996 (the “Act”)), this blog post considers issues of scope of arbitration clauses.

In 1998, Lombard and GATX concluded an agreement concerning the financing of train vehicles. In 2000, Lombard and GATX concluded another agreement. Clause 9.4 of the 2000 agreement allowed GATX, in some circumstances, to force the sale of the trains and realise their share of the profits. The 2000 agreement, including parts of its Clause 9.4, was amended by a further agreement entered into in 2004.

Clause 9.4(i), as amended in 2004, provided that if no agreement to extend the lease of the train vehicles was put into place with the UK Strategic Rail Authority by 30 March 2004, then, by no later than 30 June 2011, the parties were to establish a joint venture “in a form and manner acceptable to the parties thereto.” This provision added that “[if] the parties have been unable to establish a [joint venture] by 30 June 2011, the parties agree to negotiate in good faith to achieve such objectives through other means at the earliest opportunity.”

Amended Clause 9.4(x) (the relevant arbitration clause) provided as follows:

“Any disputes relating to the creation of the [joint venture] pursuant to this Clause 9.4 that cannot be resolved by the good faith efforts of the parties shall be referred to and finally resolved by arbitration in London. Such arbitration shall be decided pursuant to the Rules of the London Court of International Arbitration from time to time in force.”

No joint venture was established within the agreed deadline and Lombard brought legal proceedings against GATX seeking two declarations: (1) the obligation to negotiate in good faith under Clause 9.4(i) is unenforceable for want of legal content and therefore GATX is not entitled to share any profit; and (2) the amendments agreed in 2004 take effect notwithstanding the unenforceability of Clause 9.4(i). GATX, in turn, relying upon Clause 9.4(x), requested that the English High Court stay the proceedings under Section 9 of the Act.

The parties disagreed about the scope of the arbitration clause. Lombard contended that the arbitration clause was intended only to resolve disputes as to how the joint venture mentioned in Clause 9.4 should be constituted. GATX argued that the scope of the arbitration clause was broader:

“[B]y way of illustration only, [GATX] say that it covers a dispute about whether the relevant parties have been ‘unable to establish a [Joint Venture] by 30 June 2011′ within the meaning of clause 9.4(i) and any disputes not only about the terms of a Joint Venture but also about terms of any alternative arrangement or structure constituting ‘other means’.” (para 7 of the Lombard judgment).

In the light of Section 9 of the Act, the key question to be decided by the High Court was whether the proceedings commenced by Lombard were “in respect of” a matter which under the agreement to arbitrate was to be referred to arbitration. Andrew Smith J considered that the way in which the claims are formulated is immaterial to this inquiry. Instead, the right approach is for the court to “consider what questions will foreseeably arise for determination in the proceedings and whether they include referred matters.” (para 14 of the Lombard judgment).

Andrew Smith J also stated that in cases where the parties have clearly agreed to refer only certain disputes to arbitration, “the risk of proceedings before both the courts and an arbitral tribunal is inherent in the agreement.” (para 16 of the Lombard judgment). This can lead to the partial stay of legal proceedings, giving rise to the fragmentation of related disputes.

Such fragmentation of disputes did not take place in Lombard. It was common ground between the parties that if GATX was entitled to a stay in relation to the first declaration sought by Lombard, then the claim for the second declaration should also be stayed. Smith J concluded that the first declaration pursued by Lombard fell within the scope of the arbitration clause and therefore he stayed the whole of the proceedings.

The Lombard judgment highlights some of the potential risks arising from concluding an arbitration clause with a limited scope or inserting carve-out clauses into an otherwise broad arbitration agreement. Contrary to what Lombard and GATX did in their agreement, the prevailing practice in international arbitration is to include arbitration clauses that have a broad scope. A broad arbitration clause provides distinct benefits, including:

• The parties prevent the fragmentation of disputes between different fora (particularly due to the nature of the claims advanced). Obviously, having to litigate related claims before national courts and arbitral tribunals is not only expensive and time-consuming but can also give rise to inconsistent results.

Historically, the potential fragmentation of disputes before different fora has been an issue affecting disputes where some public bodies have exclusive jurisdiction to decide certain matters or where the jurisdiction of national courts was preserved on public policy grounds (e.g. antitrust and intellectual property disputes). As a result of the increasing narrowing down of the doctrine of inarbitrability, at present, the prevailing practice in leading jurisdictions is to allow most disputes (including those on the invalidity of intellectual property rights) to be resolved by arbitration.

• Including non-contractual claims arising from an underlying agreement within the scope of the arbitration clause may help prevent technical difficulties down the line. This is the case, in particular, where the respondent has asserted in arbitral proceedings that the underlying agreement is invalid. If the arbitration clause only concerns contractual disputes, a finding of invalidity of the underlying agreement would deprive the relevant arbitral tribunal from the possibility of deciding the case under a torts theory. This, in turn, can give rise to two unwelcome scenarios for a claimant. First, it might have to file a tortious claim before national courts. Second, the underlying tortious claim might be time-barred.

• A broad arbitration clause may permit the parties to bring fresh claims arising from breaches of the agreement to arbitrate or the relevant rules of arbitration before an existing arbitral tribunal. This may include, for example, breaches of duties of confidentiality if so provided in the agreement to arbitrate, arbitration rules (e.g. Article 30.1 of the LCIA Rules, Article 43.1 of the DIS Rules and Article 73 of the WIPO Rules) or applicable law (e.g. English, New Zealand, Singaporean and Spanish law). Further, depending upon the scope of the agreement to arbitrate and applicable law, an arbitral tribunal might be in a position to award damages for a breach of the agreement to arbitrate itself (see in this respect the recent West Tankers judgment [2012] EWHC 854 (Comm)).

In the light of these common benefits of broad arbitration clauses, national courts and administering institutions usually assume that the parties to an arbitration agreement would wish to have all their disputes resolved by arbitration. Particularly, national courts in many leading jurisdictions take the view that agreements to arbitrate should be construed liberally (which is the case, for example, in England, Germany, Switzerland and the USA).

Further, the language in the model clauses of many leading institutions aims at capturing most potential disputes arising from an agreement (e.g. ICC, LCIA, SCC and WIPO).

In fact, common wisdom suggests that entering into an arbitration clause with a limited scope or inserting carve-outs into an otherwise broad arbitration clause is a bad idea. Should this conclusion be elevated to a dogma of international arbitration? Is concluding an arbitration clause with a limited scope always a bad idea? Is inserting carve-outs into an arbitration clause simply a no-no?

One could, at least at first sight, be tempted to answer that limiting the scope of an arbitration clause is always a bad idea. However, for the reasons discussed below, when different factors are taken into account, the answer to the questions set out above appears to be less clear-cut.

Setting aside potential partisan considerations (where it is clear that one of the parties is likely to be the respondent, that party, for tactical reasons, may seek to agree to an arbitration clause of narrow scope, to the effect that potential disputes are fragmented – a sort of “divide and conquer” approach), parties might have legitimate reasons (quite often technical) to limit the scope of an arbitration clause.

For example, parties sometimes carve out from the scope of an arbitration agreement discrete technical or valuation disputes to the effect that these are finally resolved by means of expert determination. This can be a cost-effective and efficient solution.

In some specialist fields, the parties may have particular reasons for limiting the scope of an arbitration clause. This is the case, for example, of arbitration clauses inserted into agreements that involve intellectual property rights. If the parties wish to obtain an erga omnes ruling on the validity of the underlying intellectual property, they would have to indicate in the relevant arbitration clause that disputes on the validity of the underlying rights will be resolved by national courts or, where applicable, by a specialist national body.

Further, in the investment arbitration context there might be situations where the parties may consider limiting the scope of an arbitration clause. Suppose, for example, that a concession agreement between a State and an investor includes a model ICC arbitration clause. In this case, it would be possible to conclude that non-contractual claims which are related to the underlying investment fall within the scope of the relevant arbitration clause. Where applicable, depending upon the language of the relevant investment treaty, in theory, a potential investment claim by an investor could be caught within the scope of the arbitration clause. In such a case, with a view to avoiding potential controversies on the scope of the arbitration clause, if the investor has a preference for the framework in the relevant investment treaty, it may wish to include a carve-out in the arbitration clause.

The above options, however, have potential drawbacks. For example, combining arbitration with final expert determination can give rise to protracted (and expensive) disputes if the issues that are to be resolved by these different mechanisms are not clearly delimited. It does not help that predicting the nature of all the disputes that might arise under an agreement (particularly if it is a long-lasting one) is notoriously difficult.

In addition to the fragmentation of disputes, carving out issues of invalidity regarding intellectual property rights from the scope of an arbitration clause is likely to cripple the functioning of an arbitral tribunal if issues of invalidity arise: it is likely that the arbitral tribunal would have to suspend the conduct of the proceedings until a decision on the validity of the asserted rights is made by a national court or relevant public body. As a result, if the parties want an erga omnes declaration on the validity of the rights in issue, they would probably be better off by resorting only to litigation.

On balance, although in some circumstances limiting the scope of an arbitration clause might provide some benefits, unless the parties are in a position to undertake a painstaking drafting exercise, arbitration clauses with a limited scope and carve-out clauses are better avoided. When the stakes are high, it is often better to err on the side of caution.

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A recent decision of the English Commercial Court (Lombard North Central plc & Anor v GATX Corporation [2012] EWHC 1067 (Comm)) has provided some insight and clarification into how the English courts will interpret and implement Section 9(1) of the Arbitration Act 1996. Section 9 is how English law has complied with Article II(3) of the New York Convention, which provides for the dismissal or stay of proceedings in national courts brought in breach of an agreement to arbitrate. Generally speaking, all major common law systems (including England) expressly provide for a stay of litigation brought in violation of a valid arbitration agreement, whereas courts in civil law jurisdictions do not merely stay pending litigations, but dismiss them entirely. ¹

In Lombard Andrew Smith J considered an application to stay proceedings under Section 9(1). Section 9(1) states as follows:

“(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter…”

In Lombard, the parties (Lombard and GATX) had entered into a train financing agreement, under which GATX could in some circumstances force a sale of the trains and thereby realise any profit share. Subsequently, the parties entered into a second agreement, which contained a reference to arbitration. The essence of this second arrangement was that GATX agreed to give up its right to force a sale of the trains, and the parties agreed they would establish a joint venture (JV) by a specified date that would arrange the leasing and sub-leasing of the trains, and share any profits arising from the JV. If a JV could not be established by that date, the parties agreed to negotiate in good faith to achieve their objectives through other means at the earliest opportunity. The arbitration clause in the second agreement provided that any dispute relating to the creation of the JV that could not be resolved by the good faith efforts of the parties would be referred to, and finally resolved by, arbitration in London. It was common ground between the parties that no JV was established by the specified date in the second agreement.

There was a dispute between the parties as to the scope of the arbitration clause in the second agreement. Lombard contended that it was intended only to resolve disputes about how the prospective JV should be constituted, rather than disputes about the second agreement itself. On that basis, Lombard brought proceedings in the Commercial Court against GATX seeking (inter alia) a declaration as to the unenforceability of the parties’ agreement to negotiate in good faith.

GATX sought a stay of the proceedings under Section 9(1), and, alternatively, under the court’s inherent jurisdiction at law. GATX submitted that the proceedings were “in respect of” a referred matter under Article 9(1), and should be stayed because Lombard’s claim of non-enforceability would draw a referred matter (the scope of the arbitration agreement) into the legal proceedings. Smith J agreed with GATX’s submissions, and granted GATX’s application to stay the proceedings.

In reaching his determination on the Section 9(1) issue, Smith J considered the meaning of the phrase “in respect of” in Section 9(1), noting that “[t]here is no judicial authority of which counsel or I know that directly considers the meaning of ‘in respect of’ in section 9(1) or how the court determines whether proceedings are in respect of a referred matter.”

Smith J held that: “the question of course depends upon the nature of the claim (or claims) made in the legal proceedings, but not, I think, only on the formulation of it (or them) in the claim form and any pleadings. That would allow a claimant to circumvent an arbitration agreement by formulating proceedings in terms that, perhaps artificially, avoid reference to a referred matter, knowing that any application to stay them must be made before a defence is pleaded. In considering a Section 9(1) application, the court should therefore consider what questions will foreseeably arise for determination in the proceedings and whether they include referred matters.”

Smith J rejected a narrow approach that proceedings are “in respect of” a referred matter only when they are “mainly or principally” resolving a dispute about a referred matter. He held that this was consistent with the Court of Appeal’s approach in Fulham Football Club (1987) Ltd v Richards and another [2011] EWCA Civ 855, where the CoA had considered that a question whether proceedings under section 994 of the Companies Act 2006 asserting unfair prejudice should be stayed depended upon whether the arbitration agreement was inoperative under section 9(4) rather than upon whether the proceedings were covered by section 9(1).

In Fulham Football Club, Patten LJ had held that “Section 9(1) is concerned only to identify the existence of an arbitration agreement which in terms covers the matters in dispute as the preconditions (sic) for the making of the stay application”. Smith J held that he did not understand Patten LJ to mean that it is a precondition to a stay application that all the matters in dispute be referred matters.

Smith J’s decision in Lombard raises two pertinent issues. First, whether proceedings are “in respect of” a matter referred to arbitration depends on the nature of the claim, but not on the formulation of the claim in the claim form or pleadings. Therefore, lawyers cannot avoid the risk of a stay under Section 9(1) through clever drafting.

Secondly, Section 9(1) may bite if there is a referred “matter” in issue, even if there are other “matters” in dispute before the court that are not included within the scope of the arbitration agreement. In such a scenario, the court can adopt one of two approaches. It may stay the entire proceedings pending the outcome of the arbitration, or alternatively, it may allow the general court proceedings to carry on, but stay only the discrete arbitral matter. The key issue for the court is in determining how peripheral the arbitral issue has to be to the dispute as a whole before it will order a general stay of proceedings. That will depend on the specific facts of each case.

In the Lombard case, Lombard accepted that, if GATX was entitled under Section 9(1) to a stay of its first claim, then a second, related claim should also be stayed under the court’s inherent jurisdiction, if not Section 9(1). Accordingly, Smith J did not appear to feel required to consider whether the related claim should also be stayed. He did say however that had be been required to do so, he would have stayed the related claim in any event as this would have been demanded by sensible case management.

Where, as in Lombard, the parties agree to refer to arbitration only certain disputes that might arise from their contractual relationship (in this case, only disputes relating to the creation of a future joint venture), the risk of fragmentation of proceedings with the attendant cost and delay is inherent in the agreement, even in the post-Fiona Trust legal landscape where English courts are required to interpret arbitration agreements expansively.

Written by Gary Born and Charlie Caher

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A party who wishes to circumvent an arbitration agreement may sometimes proceed to obtain default judgment from a friendly court and then seek to enforce that judgment, under the common law, as a debt in the courts of the country where the counterparty is located. A recent Singapore decision, Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd [2012] SGHCR 2, illustrates such a scenario. From a reverse perspective, it showcases how a party may find itself subject to a proceeding to enforce a debt arising out of a foreign court judgment that had been secured from a friendly court in spite of an arbitration agreement.

In Giant Light Metal, the plaintiff, Giant Light Metal, was the buyer of two generator sets from Aksa, the defendant. The contract for the sale and purchase of the generator sets contained an arbitration agreement. Giant Light Metal subsequently alleged that the defendant had committed various breaches of contract. Instead of commencing arbitration proceedings, Giant Light Metal commenced court proceedings in the Suzhou Intermediate Court, Jiangsu Province, in the People’s Republic of China (PRC). Giant Legal Metal served the papers relating to the PRC claim on Aksa at the latter’s registered address in Singapore.

Aksa chose not to participate in the proceedings before the PRC court. The PRC court granted judgment in favour of Giant Light Metal. The Chinese judgment was served on Aksa in Singapore. Aksa did not appeal the decision.

Subsequently, Giant Light Metal requested Aksa to pay the PRC judgment sum. Because Aksa refused to pay, Giant Light Metal commenced proceedings before the Singapore High Court to recover the debt arising from the PRC judgment. Aksa responded by applying for a stay of proceedings in favour of arbitration.

The Assistant Registrar denied Aksa’s stay application. He rightly held that a stay of proceedings under the International Arbitration Act can only be granted if the proceedings instituted fall within the terms of the arbitration agreement. The arbitration agreement in the instant case only covered “any dispute or controversy arising out of or relating to the contract between the parties during performance . . .” The last two words made it easy for the court to hold that an action to recover a debt arising out of a foreign court judgment was not a dispute arising during performance of the contract. Even if those two words were not in the arbitration agreement, it is suggested here that the stay application should arguably still be denied. That is because the proceedings commenced by Giant Light Metal does not arise out of the contract per se. Giant Light Metal’s (alleged) entitlement to be paid arises out of the foreign court judgment; there was no need for Giant Light Metal to rely on the contract any more.

That however does not mean that a party in Aksa’s shoes is necessarily doomed. In order to enforce a foreign court judgment as a debt under the common law, the Assistant Registrar stated that:

“Foreign judgments in personam may be enforced by a claim in proceedings … if the foreign judgment is a money judgment of a court of competent jurisdiction, and that the judgment pronounced by the foreign court is final and conclusive as between the parties.”

Astute readers would have already picked out the two key words in this proposition of law. The foreign court must be one of “competent jurisdiction”. Under the common law, a foreign court has competent jurisdiction either if (i) the defendant was “present” in the foreign jurisdiction when proceedings were instituted, or (ii) the defendant had submitted to the jurisdiction of the foreign court. If a party like Aksa can show that neither of these conditions have been satisfied, there is a good arguable case it will be able to resist the attempt by its opponent to enforce a foreign judgment as a debt under the common law.

The difficulty arises if a party like Aksa has a PRC “presence”. Consequently, practitioners should be alive to the possibility of such manoeuvres to circumvent an arbitration agreement, and the risks it poses to clients with international presences.

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For almost 20 years, Mexico has been at the forefront of Latin-American arbitration practice. It has been widely recognized both in terms of the quality and sophistication of its practitioners, its modern legal framework (since 1993 based on the UNCITRAL Model Law on International Commercial Arbitration) and for its arbitration friendly judiciary.

According to statistics published every year by the International Chamber of Commerce, Mexico (alongside Brazil) is one of the most frequent Latin-American nationalities present in ICC arbitration proceedings. Just in 2010, there were a total of 62 Mexican parties (business entities or individuals), in a total of 23 arbitrations, Mexico City was the place of arbitration in 13 cases and a total of 24 Mexican arbitrators were either confirmed or appointed by the ICC Court. The statistics for 2011 are equally surprising.

More surprising however, is that over the last four years, more than 14 ICC arbitrations involving Mexican parties, involved a Mexican state entity either as Claimant or as Respondent. It is well known that the state owned oil & gas company PEMEX (Petróleos Mexicanos) and power giant CFE (Comisión Federal de Electricidad) are Mexico’s most recurrent users of arbitration, ICC arbitration in particular.

While the CFE and PEMEX are not the only state entities to include arbitration provisions in their contracts with private parties, the involvement of other state entities in arbitral proceedings has been less significant than that of the CFE and PEMEX. The reason behind this is that their “organic laws” were the only laws that provided for the possibility of arbitrating their disputes with private parties. This will, however, change in the short term in light of recent reforms to the Mexican Public Works Law and Public Procurement Law as well as the January 2012 enactment of the Public-Private Partnerships Law. The reforms and the new law now expressly open arbitration to all public works contracts and to all long term service contracts with the federal government.

The move confirms Mexico’s clear policy in favor of arbitration and promises to increase its use for resolving disputes arising out of public contracts. There is no doubt it will. The question is whether the Mexican government and its state owned entities will be prepared, well trained and organized to deal with arbitration proceedings under their respective contracts.

Both the CFE and PEMEX have their own legal departments, composed of lawyers specializing in public procurement, energy, oil & gas, construction and administrative law, all of which have gained experience in arbitration practice, in light of their frequent involvement in such proceedings. In reality, almost all of the arbitrations are handled solely by their staff attorneys, rarely employing outside counsel to assist them. However, due to the particularities of Mexican politics, it is not uncommon to see a particular government office or state entity change heads in brief periods of time (sometimes in less than a year, sometimes every presidential term), thereby affecting the composition of the legal teams, their continuity and strategy.

While the CFE has been able to maintain the permanence of its legal department for the past ten years or so and has thus assured continuity in its representation and defense, each division of PEMEX (at least three) has its own separate legal department that independently deals with the arbitrations filed by the division or against it. These legal departments have high turnover rates as team leaders change more often than not and there is no uniform approach and strategy in their arbitrations. Moreover, the interaction between the legal departments is scarce, leading to deficient coordination and affecting the appropriate representation of the state entity.

The range of activities in which CFE & PEMEX are involved and the overwhelmingly complex disputes that arise out of their contracts with private parties, require a high level of specialization from state attorneys. Moreover, the amount of arbitrations filed in a year, the reforms and laws expressly opening the road for arbitration of state contracts, the existence of several legal departments working independently from one another and the fact that such work generally overlaps because of the similarities among the factual and legal scenarios present in state contract disputes, begs the question of whether Mexico should consider establishing a specific, self-contained unit for the representation of its government and state owned entities.

In the same way as Argentina has its Procuración del Tesoro de la Nación, which is mostly known for its highly specialized group of lawyers representing the government and its state owned entities in arbitrations filed before ICSID and the ICC Court, Mexican policy makers and legislators should consider the benefits of creating a Mexican Procuración, especially now in the wake of the upcoming presidential and legislative elections.

The achievements of Argentina’s Procuración del Tesoro de la Nación can be measured by the consolidation of a team of lawyers vastly specialized in handling complex disputes involving issues of public and private international law, construction law, energy law and that are dedicated to serving their country by defending it in high-profile cases. The coordination among Argentina’s lawyers and their sophistication in tackling the most complex legal issues is impressive.

Although Mexico has had its share of investment disputes and has been remarkably represented by a group of lawyers within the Ministry of Economy, its docket is mostly composed of a significant number of international arbitrations that involve its most important state owned entities. The amounts in dispute in these cases frequently exceed seven and, sometimes, even eight figures. While the need for a self-contained unit for the representation of the Mexican government and its state owned entities such as Argentina’s Procuración may not seem obvious, considering the unquestionable benefits of coordination and specialization amongst legal staff and the efficiency that such coordination promotes, a harmonized team for the defense of the Mexican government would be more efficient, less costly and would potentially increase its success rate.

With 2012 being an election year in Mexico, some of the candidates running for the presidential office have mentioned their intentions to create a Ministry of Justice. Whether a unit for the representation of the Mexican government and state entities is clinged to a future Ministry of Justice or whether it is incorporated within an existing structure, is something to be carefully considered and evaluated. What is certain is that in order to avoid the idiosyncrasies of Mexican politics and to assure its independence from political maneuvers, internal liability matters and budgetary restraints, a specific, self-contained unit for the representation of Mexico and its state entities would ideally have financial independence and autonomy from the central government in its decision making process. Such independence and autonomy would assure the continuity of the strategies employed in Mexico’s defense, would guarantee the specialization and permanence of its members and would undoubtedly lead to significant savings.

The representation and defense of Mexico and its state owned entities is a question of public interest. Considering Mexico’s clear policy in favor of arbitration, the number of arbitrations filed and the stakes involved (the Mexican people’s assets and property), isn’t time we start contemplating the advantages of a Mexican Procuración? A prima facie evaluation of the benefits illustrates its promise; the question is whether government will foster the idea.

*Victor M. Ruiz is a member of Von Wobeser & Sierra, S.C.’s litigation and arbitration practice in Mexico City. Prior to joining Von Wobeser y Sierra, S.C., Victor was a Deputy Counsel at the ICC International Court of Arbitration (A lengthier version of this note co-authored with Marco Tulio Venegas will be published shortly)

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Over the years, many arguments have been made for what are truly the benefits of international arbitration over local litigation. There are many factors that are listed and ensuing arguments over their continued veracity. Complaints are launched about whether such factors truly remain a benefit (the largest and most obvious one which comes to mind is costs, but that horse has been beaten enough).

I attended the local Netherlands Chapter meeting for the Chartered Institute of Arbitrators on Tuesday evening in The Hague. I will not provide a recount of this meeting with its intriguing presentation from Peter Rees, Legal Director of Royal Shell plc as the Paris Journal of International Arbitration will no doubt do an excellent job in their upcoming report on the event. In any case, I would like to explore one topic – confidentiality – which has been inspired by Mr Rees’ remarks.

When new to arbitration, I was also convinced that confidentiality was a true hallmark of the benefits which international arbitration offers. Over time, with experience and increased knowledge I learned – is that truly so? Some jurisdictions protect confidentiality within dispute resolution, true. Yet, confidentiality of the proceedings or even the very existence of the arbitration itself may not automatically be protected. Mr Rees pointed out (1) that Australia was an example of a jurisdiction getting away from this protection, and (2) general counsel WANT this protection, especially in industries in which a dispute may arise in one part of the world between businesses while in another part of the world amiable and profitable projects are still ongoing. These parties do not want their dirty laundry aired.

Most arbitral institutions do indeed somehow address confidentiality in arbitration, but either they simply encourage the tribunal to respect the confidentiality of sensitive information or perhaps require the parties to, very few have an all-encompassing, mandatory confidentiality provision; Although, the LCIA does appear to have such a clause (see LCIA Arbitration Rules Clause 30). Also note that the 2012 ICC Arbitration Rules Article 22 authorizes the tribunal to “take measures for protecting trade secrets and confidential information”, but it is not compulsory. This does not mean that in practice tribunals do not strive to protect the privacy of the parties, but there is often not a concrete protection already in place.

Moreover, key jurisdictions’ arbitration acts also vary dramatically. The US Federal Arbitration Act does not address confidentiality, although courts generally recognize this as important to arbitration. The United Kingdom courts do generally also protect the privacy of the proceedings and associated documents; however, other countries grant no such confidentiality assumption without a specific provision for confidentiality in the arbitration agreement. Even though this is not a guarantee, it is worth including confidentiality protection in the arbitration clause. As Mr Rees noted, in-house counsel take risks and sometimes that means a tighter arbitration clause even when they do not know yet the circumstances which may lead to a dispute. So for those representing in-house counsel – they want confidentiality protected. For in-house counsel – be alert to the confidentiality protections.

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This week, Spanish energy firm Repsol put Argentina on notice of an arbitration claim under the Spain-Argentina bilateral investment treaty. The development comes as no surprise, as Repsol had been threatening for some weeks to take such a course if Argentina persisted in nationalizing the bulk of Repsol’s 57% stake in the Argentine firm YPF.

But am I the only person who was wondering whether Spain might step forward to sue Argentina on behalf of Repsol?

To be sure, a state-to-state claim would swim against the tide of conventional wisdom. After all, modern Bilateral Investment Treaties contain investor-to-state arbitration clauses precisely so that investors can fight their own legal battles.

However, in recent years, at least one European government has exercised diplomatic protection on behalf of its nationals by invoking the state-to-state arbitration provisions of a bilateral investment treaty. The recently-documented decision by Italy to sue Cuba on behalf of 16 putative investors has illustrated the potential utility of the oft-neglected state-to-state arbitration mechanism found in many BITs.

Several aspects of the Repsol-Argentina controversy make it an intriguing candidate for state-to-state arbitration.

Spain is likely to be dragged in at some stage anyway

In the days after the announcement of Argentina’s nationalization plans, Spain was swift to announce that it would take retaliatory action against Argentine imports. Even if Spain stays its hand for now – and lets the European Commission handle any trade retaliation – the Spanish government is likely to be dragged into the Repsol-Argentina dispute down the road.

Unless Argentina alters it present strategy of not paying final arbitral awards voluntarily, any foreign investor that pursues investor-state arbitration will inevitably turn back to its home state for political and legal muscle during the enforcement and collection phase. Just as the United States and France have been dragged into disputes after their respective investors have failed to collect on final arbitral awards against Argentina, Spain would likely be asked by Repsol to help play the role of collections agent.

If it is inevitable that Spain will get dragged into the dispute during the enforcement end-game, then authorities might have fewer illusions about the supposed “depoliticization” offered by investor-state arbitration. If Spain can look forward to wrestling with Argentina over the enforcement of an arbitral award, perhaps Spanish government lawyers might like to have a hand in the running of the case that gives rise to that award.

A more active Spanish role does not have a huge diplomatic downside

Greater involvement by Spain in the arbitration with Argentina would not necessarily come at the expense of diplomatic relations between the two countries. Increasingly frayed diplomatic relations between Spain and Argentina in recent years mean that Spain is unlikely to play an effective role as facilitator or honest-broker vis a vis Spanish investors and Argentina.

Spanish Foreign Minister José Manuel García-Margallo admitted as much in a recent interview with The Wall Street Journal, where he conceded that Spain had expended considerable diplomatic energy – ultimately in vain – to heading off the nationalization of Repsol.

A source familiar with the resolution of earlier ICSID disputes between Spanish companies and Argentina tells me that the warmer relations between Spain and Argentina in previous years were instrumental in getting several investment disputes – like those involving Gas Natural and Telefonica – resolved without needing to arbitrate them fully.

With Spain bereft of any hope of playing such a facilitative role this time around – and less encumbered by the need to safeguard its good political relations – perhaps the Spanish authorities would have fewer qualms about stepping forward and playing a more central role in any arbitration with Argentina.

Nothing to lose, but what is to be gained?

While Spain might have less to lose, what would be gained by bringing a state-to-state claim?

Perhaps most obvious is that Spain – at a time when it is itself facing arbitral claims from disgruntled foreign investors – might have an interest in playing a more hands-on role in the arbitral processes through which concrete meaning is given to the terms of Spanish investment treaties.

Equally, if Spain were to climb into the driver’s seat, the European Union might be keen to do some “backseat driving”. As is well known, the E.U. has taken over the competence to negotiate investment agreements on behalf of E.U. member-states with non-E.U. member-states, and the Brussels-based European Commission would certainly expect to work closely with Spain on any claim against Argentina.

Given the E.C.’s extensive experience in active claims-management on behalf of E.U. trading interests in the World Trade Organization, I suspect that Brussels might not find a claim by Spain to be so unusual or off-putting. Indeed, managing such a case might provide a further opportunity for Brussels to place its own stamp on the development and evolution of investment law. For some time now, Brussels has been reduced to the role of a peeping tom, seeking to peer into closed investor-to-state proceedings, and to make its views heard (sometimes over the objections of the parties involved.)

The question of speed

Another factor which Spain might consider in deciding whether to bring an arbitration claim against Argentina could be the speed with which a state-to-state arbitration might play out. It remains to be seen whether a state-to-state proceeding could offer a faster alternative to the clearly glacial pace of many investor-to-state claims against Argentina.

In some cases, it seems that state-to-state arbitration would be markedly swifter.

Under the U.S.-Ecuador BIT, such claims must be resolved in a mere 6 months after the constitution of a tribunal. Such a timetable – if applicable in real life – would be a massive improvement on the time it takes to resolve investor-state claims.

Unfortunately for Spain, the Spain-Argentina BIT does not contain the type of extreme fast-track process prescribed in certain outlier treaties like the U.S.-Ecuador BIT. However, even without such a treaty-imposed deadline, it strikes me that state-to-state arbitration could be faster than investor-to-state proceedings in some instances.

To be fair, any head-start conferred on state-claimants by the Spain-Argentina treaty – which allows for claims to be filed a mere 6 months, rather than (an arguable*) 24 months after notification for investor-claimants – would be offset by the requirement for the exhaustion of domestic remedies that applies in diplomatic protection contexts. I’m not sure if the exhaustion requirement might be applied flexibly in this case, but there is certainly a possibility that domestic remedies could be protracted. If Repsol were obliged to spend years in the Argentine courts, then it might take Spain longer to get to the arbitral starting line than if Repsol proceeded in its own name.

It would remain to be seen whether the actual arbitration process would be faster or slower in a state-to-state context than in an investor-state one. However, until we see a few test-cases brought by states – and can measure their overall pace – I remain open-minded as to whether state-to-state claims could be arbitrated more swiftly than investor-state claims.

In the coming months, we’ll see if Spain decides to interpose itself into the legal phase of the Repsol controversy. Probably, it won’t.

However, the precedent set by the recent Italy-Cuba BIT arbitration – coupled with the recent tendency of home-states to get dragged into investor-state cases anyway during the enforcement end-game – should be enough to open the eyes of home-states to the long-overlooked prospect of bringing state-to-state arbitration claims under bilateral investment treaties.

(* Note that views will differ as to whether Repsol could, in light of recent arbitral developments, expect to use an MFN clause in order to steer around a treaty requirement of 18 months of local litigation prior to international arbitration.)


Luke Eric Peterson is Editor of Investment Arbitration Reporter, an online news and analysis service specializing in foreign investment law and policy. By invitation of Kluwer, he contributes occasional commentary to the Kluwer Arbitration Blog

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On 6 March 2012, Justice Sir David Steel of the Court of First Instance of the Dubai International Financial Centre – DIFC – rendered a decision refusing to grant a stay of the proceedings, and ignoring an option in the underlying contract to opt out of the Court’s jurisdiction by referring to LCIA arbitration.

In summary of the facts, Injazat Capital Limited and Injazat Technology Fund ITF (Claimants) brought a claim before the Court of First Instance against Denton Wilde Sapte DWS (Defendant) for alleged negligence and failing to advice the Claimant in regard to the existence or exercise of an option to sell shares it acquired under a Share Subscription Agreement.

DWS submitted a claim to stay those proceedings since DWS’s terms of business, attached to an engagement letter sent to ITF, provided for a jurisdiction clause that reads, i.e.: “If any claim, dispute or difference of any kind whatsoever (…) arises out of or in connection with those agreements (…), you and we each agree to submit to the exclusive jurisdiction of the Dubai Courts. However, we may at our sole option, refer the claim, dispute or difference to LCIA arbitration in London (…)”.

The Claimant asserted that the terms of business and the arbitration option were not received, and in any event they were not accepted, although DWS’s position was that the terms were forwarded by fax and e-mail to the Claimant who did not respond to it.

The grounds based on which the Court refused to grant a stay

DWS pointed to the application of article 13 of the DIFC Arbitration Law (Law No. 1 of 2008) obliging the Court to grant a stay in the presence of a valid agreement to arbitrate. The Court accurately rejected its application on the basis that the said Law only applies where the seat of arbitration is the DIFC as provided in its article 7.

Following that, the Court has made several misconceptions in its justification to refuse granting a stay.

Turning to the New York Convention NYC to which the UAE is a member since 2006, the Court could have granted a stay in accordance with article II(3) of the NYC, instead it rejected its application on the basis that there is no ambiguity with regard to the scope of application of article 13 of Law No.1 despite that there is a presumption that legislation is drafted in a manner consistent with treaty obligations (Salomon v. Commissioners of Customs and Excise [1967] 2 QB 116). Article II(3) of the NYC sets out the maximum threshold that a member State can adopt and provides for the obligation of the Court to refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed. The Court, in clear violation of that article, relied on the more onerous provisions of the scope of article 13 of Law No.1 conditioning the grant of a stay only to those arbitrations where the seat is in the DIFC.

In strengthening its position, the court referred to article 5 of the Dubai Law No. 12 of 2004 relating to the jurisdiction of the DIFC Court (as amended by Law No.16 of 2001), and which allows the parties to submit to the jurisdiction of any other Court. Although the term “any other Court” is wide enough to encompass a reference to an arbitration tribunal or Court, the Court of First Instance decided that there is no room for construing Law No.12 as if it covers parallel proceedings before a Court and an arbitral tribunal.

Back to the jurisdiction clause of DWS’s terms of business, the latter referred to the jurisdiction of the Dubai Courts. DWS contended that the Dubai Courts meant the national Courts of Dubai other than the DIFC. Strangely, the Court of First Instance decided that the onus is on DWS to establish that it constituted an agreement to contract out of the DIFC Courts, and further construed that the background circumstances in which the contract was entered into – the provision of legal advice within the DIFC – leads to the conclusion that the reference is to the DIFC Courts.

It is common sense however for all practitioners in the UAE that a reference to the Courts of Dubai is, rather than being construed, a clear reference to the non-DIFC Courts (Hardt v Damac – CFI 036/2009). Additionally, the aforementioned Law No.12/2004 amended by Law No.16/2001provides in article 2 a clear definition of the Dubai Courts as those of the “Emirate of Dubai”.

The decision of the Court of First Instance raises several concerns as to how similar applications for a stay will be dealt with in the future, and poses questions as to the enforceability of the New York Convention by DIFC Courts.

It is noteworthy that the DIFC Courts system provides for a mechanism of appeal before the Court of Appeal, and a decision by the same on that matter should be worth waiting for.

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When is an arbitral panel an international tribunal for purposes of Section 1782? Section 1782, of course, is the U.S. statute that authorizes federal courts to order discovery in aid of proceedings before foreign courts and international tribunals. As discussed in a forthcoming article in the Virginia Journal of International Law entitled, Ancillary Discovery to Prove Denial of Justice, what constitutes an international tribunal is not a simple question. It is also a critically important question, because the power to invoke federal court discovery in aid of foreign or international proceedings is one of the most effective evidentiary tools that any international lawyer can wield.

Ever since the Supreme Court’s 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc. that question has vexed lower federal courts. Although the Supreme Court did not address international arbitration directly, its reasoning appeared to support a broad interpretation that would encompass arbitral tribunals, which likewise act as “first-instance decision-makers” that render “dispositive rulings” subject to limited national court review. Moreover, in describing the scope of Section 1782, the Court found that Congress amended the statute in 1964 to “provide the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad” and quoted scholarly commentary that defined the term ‘tribunal’ to include “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”

In the wake of Intel, federal courts have struggled to apply the Court’s liberal Section 1782 standards to the context of international arbitration. Lower courts are divided on the question of whether a contract-based private international arbitral panel satisfies the statutory definition of “international tribunal.”

A majority have concluded that arbitral tribunals established by private contract are “foreign or international tribunals.” As the federal district court in In re Babcock Borsig AG, 583 F.Supp.2d 233 put it, addressing a Section 1782 petition involving an ICC arbitration, “[t]here is no textual basis upon which to draw a distinction between public and private arbitral tribunals, and the Supreme Court in Intel repeatedly refused to place ‘categorical limitations’ on the availability of § 1782(a).” Under this analysis, the functional approach adopted by the Supreme Court in Intel suggests that contract-based arbitral tribunals are first-instance decision-makers that issue decisions both responsive to the complaint and reviewable in court. As the court in Roz Trading, 469 F.Supp.2d 1221 put it, “it is the function of the body that makes it a ‘tribunal,’ not its formal identity as a ‘governmental’ or ‘private’ institution.”

Other federal district courts have concluded that private arbitral tribunals are not “international tribunals” within the meaning of Section 1782. These courts focus on arbitration as an alternative to litigation, foreclosing a key element of Intel’s analysis: judicial review. “[T]he very narrow circumstances in which [arbitral] decisions may be subject to review does not allow for judicial review of the merits of the parties’ dispute,” opined the federal district court in Norfolk Southern Corp., 626 F.Supp.2d 882. “Accordingly, the ‘arbitral tribunal’ at issue here does not fall within the definition the Supreme Court embraced in its Intel dictum.” Moreover, according to some courts, the fact that the source of judicial authority is derived from private agreement likewise militates against classifying it as a foreign or international proceeding under § 1782. Finally, pragmatic concerns have loomed large in the analysis. As one court put it, “[i]nterpreting § 1782 to apply to voluntary, private international arbitrations would be a body blow to such arbitration, since it would create a tremendous disincentive to engage in such arbitration wherever, as here, such a reading would create substantially asymmetrical discovery obligations.”

Whatever doubts there may be about the application of Section 1782 to contract-based international arbitration, federal courts uniformly agree that an arbitral tribunal established pursuant to a bilateral investment treaty constitutes an “international tribunal” within the meaning of the statute. Since Intel, over twenty federal courts have considered motions to compel Section 1782 discovery in aid of proceedings before treaty-based investment arbitration tribunals. Not a single federal court has held that such arbitral tribunals fall short of the statutory definition of an “international tribunal.”

Rather than take a functional approach that analyzes whether the investment tribunal is a first-instance decision-maker rendering decisions subject to judicial review, these courts either assume that such arbitral panels are “international tribunals,” or focus on the fact that the arbitral tribunal has its origins in a bilateral investment treaty. Although the absence of judicial review in the investment context is even more pronounced than in private commercial arbitration, this factor has not featured in any of the decisions applying Section 1782 to investment arbitration. In short, federal courts take a functional approach in defining an “international tribunal” in the commercial arbitration context, and a formalist approach in the investment arbitration context.

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This post follows on from the highly informative Kluwer Arbitration Blog post by Elizabeth Kantor, “The ‘West Tankers’ Saga Continues: Can Damages Compensate for Breach of an Arbitration Clause?”

Whilst that focussed principally on the implications for, and efficacy of, the type of award in issue the purpose this post is, in contrast, to look again at the argument that initially prevailed before the tribunal and what it would have meant for English arbitrations more generally had Flaux J accepted it.

The basis upon which the tribunal ruled that it could not make any award of damages will strike many as highly controversial.
The starting point was the reasoning of the ECJ that it deployed to outlaw the grant of an anti-suit injunction by one EU Member State court against proceedings brought in another in breach of an arbitration clause. In doing so the ECJ held that, although the proceedings for relief in the former came within the arbitration exclusion of Council Regulation 44/2001 (the “Regulation”), this did not mean they could be permitted to otherwise undermine the effectiveness of the Regulation. In the ECJ’s view an anti-suit injunction did this as it restricted the ability of the first seised court to rule on its own jurisdiction and interfered with a litigant’s right to a form of judicial protection to which it was entitled.

In the tribunal’s view (which is set out at paragraphs 22-26 of Flaux J’s judgment and was largely relied upon by the insurers before him) the “underlying theme” of the ECJ’s decision was that the right to bring proceedings before an EU Member State court in accordance with the Regulation is therefore to be given pre-eminence. That being the case, a decision by a tribunal with seat in England which would effectively punish a party for so doing could not be sustained. The Regulation accordingly constrained the ability of the tribunal to act for essentially the same reasons that an English court is precluded from granting the anti-suit injunction.

One can find great difficulties with this conclusion. Primarily, there is the arbitration exclusion to consider. Surely, it wholly covers the proceedings before the tribunal – which should therefore be free from any constraints. Crossing that threshold is an entirely different proposition from the matters that were before the ECJ.

Buttressing that argument are the observations made by AG Kokott at paragraphs 70-73 of her opinion (with which the ECJ did not disagree). She acknowledged that a consequence of arbitration’s place outside the Regulation was that parallel proceedings within the EU before an arbitral tribunal and a Member State court can arise and that this could lead to inconsistent rulings on jurisdiction and the merits of the case. Indeed, rectifying that exact situation was what that she saw as being the goal of the anti-suit injunction (albeit such being an impermissible means of achieving it).

These objections, which formed the thrust of West Tankers’ arguments before Flaux J, were, for the tribunal, not enough to displace its view of the width of the ECJ’s ruling.

Correctly, it is suggested, Flaux J disagreed with the tribunal. His primary conclusion (see paragraphs 51-68 of his judgment) was that the tribunal had erred in law and that it was not barred from making the award of damages. In particular, he held that there absolutely nothing in the reasoning of either the AG or ECJ to support the far-reaching conclusion that the tribunal itself fell within the scope of the ECJ’s decision.

In Flaux J’s opinion, not only was it the AG’s clear view (as evidenced by those parts of her opinion mentioned above) that a tribunal was simply not affected by the Regulation, it was, additionally, wrong to suggest that there could be any meaningful difference between living with the possibility of inconsistent decisions on the merits or jurisdiction, which the AG expressly recognised, and allowing the tribunal to award damages as a result of a breach of the arbitration clause. The latter was merely a manifestation of the aforesaid state of affairs. More generally, there was nothing in the reasoning of the ECJ itself to suggest that the type of constraints imposed on a national court by its decision should also extend to an arbitral tribunal.

Flaux J’s decision is clearly to be welcomed. If the insurers’ (and tribunal’s) position had been accepted it would not only have negated the ability of an English tribunal to grant the type of relief in issue but would have left it with difficult questions as to what else it cannot do if proceedings are brought in another EU Member State court. In that latter regard it is perhaps arguable, given the direct subject matter of the damages award, that distinguishing between other action taken and the award of damages for breach might not carry the difficulties that Flaux J suggested (at paragraph 74 of his judgment). Having said that, it is understandable why the judge would want to emphasise such a point in order to help ensure that any need for a tribunal to address such problems was avoided entirely.

Such problems would, of course, be the natural consequence of accepting an argument which amounts to little more than requiring the arbitration exclusion to be overridden by the Regulation even in those proceedings to which it should most clearly find application. The emergence of such arguments is perhaps no surprise given the use of similar reasoning by the ECJ in its decision. More happily, it appears that the English courts are more than ready to sensibly interpret the more difficult aspects of the ECJ’s ruling and to reaffirm the remaining boundaries between the courts and arbitration in this sphere.

The judgment is available here.

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In the most recent of a long-running series of decisions in the West Tankers saga, the English court has found that the majority of the tribunal was wrong to decline jurisdiction to award equitable damages or to declare a party liable to indemnify the other as a result of the breach of an arbitration clause.

Background to the English court’s decision

The protracted history of this dispute will be familiar to many arbitration practitioners worldwide, and particularly to those in Europe. It all began in August 2000, when a vessel owned by West Tankers, under charter to Erg, collided with Erg’s jetty in Syracuse, Italy. The charter party was governed by English law and contained an agreement to arbitrate any disputes in London.

Erg claimed compensation from its insurers and also commenced arbitration proceedings in London against West Tankers for the excess in damages above that covered by the insurance. Sometime later, the insurers brought proceedings against West Tankers before an Italian court to recover the sums they had paid to Erg, despite the existence of the arbitration clause. The dispute gained considerable renown when West Tankers’ application for an anti-suit injunction restraining the insurers from pursing the Italian court proceedings was refused following a landmark ruling from the ECJ which held that such relief would not be compatible with the Brussels Regulation.

West Tankers subsequently secured a favourable award from the arbitral tribunal holding that it was under no liability to either Erg or Erg’s insurers. It then successfully sought to obtain a judgment in terms of that award, using section 66 of the Arbitration Act 1996 (the ‘Act’). In the latest proceedings, it sought from the tribunal an award of damages for the breach of the arbitration agreement as well as an indemnity for the costs of defending the Italian proceedings. The tribunal declined jurisdiction to make this award, which prompted West Tankers to file an appeal with the English Court on a point of law under section 69 of the Act. It is that decision which is the subject of the latest judgment of the English court. To date, the Italian court has not yet ruled on whether it has jurisdiction to hear the dispute.

The decision of the English court

In finding that the majority of the tribunal had erred in law, Flaux J determined that there was nothing in the ECJ’s judgment (or the Opinion of the Advocate General on which it was based) which deprived the tribunal of jurisdiction to award relief for breach of the obligation to arbitrate. He relied heavily on the recognition by the ECJ of the possibility of parallel arbitration and court proceedings. Bearing in mind the fact that a tribunal and a court may reach inconsistent decisions on the merits and/or the scope and effect of the agreement to arbitrate, he held that there would be no qualitative difference between inconsistent judgments and an award of damages for breach of the arbitration agreement. In fact, a damages award would be an extension and consequence of the declarations made in the previous award as to the merits of the dispute.

Flaux J considered that the tribunal’s decision had been based on a misunderstanding of the principles underlying the ECJ’s decision as regards the application of the Brussels Regulation to arbitration. He acknowledged that arbitrators are bound to apply EU law but clarified that arbitration is excluded from the scope of the Brussels Regulation by Article 1(2)(d). In his view, the obligation to uphold the principle of effectiveness and mutual trust between Member State Courts in the context of the Brussels Regulation lies on ‘national authorities’ (which does not include private tribunals). As such, the tribunal was not obliged to defer to the Italian courts in the same way that an English court would need to under the Brussels Regulation.

But what is the practical effect of this decision?

Flaux J gave permission to appeal and commented that this case is likely to go further. Nonetheless, until any successful appeal, there is scope for a party faced with parallel proceedings in the EU in breach of an arbitration agreement to seek recompense from an arbitral tribunal for that breach, so as to put it (so far as possible) in the position it would have been had the parallel proceedings not been pursued. This would effectively allow it to seek compensation for the legal costs involved in defencing the parallel proceedings to the extent that was not ultimately recovered in the Italian proceedings.

Therefore, where proceedings before a court of a Member State run parallel with arbitration proceedings, the threat of being liable for compensatory damages should the national court decline jurisdiction may discourage parties from pursuing so-called ‘torpedo’ actions in future.

Does this decision represent progress for arbitration?

Alongside the previous judgment of the English court relating to section 66 of the Act, this is, in many ways, a result which represents progress for arbitration in Europe: parties who find themselves engaged in proceedings in a forum they have not selected will be comforted to know that this remedy may represent a deterrent for their counterparty. It also serves to limit the anti-arbitration ramifications of the ECJ’s decision regarding the anti-suit injunction by effectively rendering the Italian proceedings academic even though they cannot be injuncted.

However, it is questionable whether the advantages of this decision are confined to those who seek enforcement locally. Pending the reform of the Brussels Regulation, there is still little clarity on the interface between the jurisdiction of arbitral tribunals and the jurisdiction of the courts. This decision does not fully address what happens in the scenario whereby the court of a Member State accepts jurisdiction (notwithstanding the arbitration agreement), and issues a judgment which is inconsistent with that of an arbitral tribunal. In those circumstances, depending on where the relevant assets are located, the party who has been awarded damages may be left with no option but to return to the same national court which issued an inconsistent judgment in order to enforce this award. This could lead a court of a Member State to be asked to enforce an award which effectively seeks to undermine its own judgment. The question is then whether that court would be able to resist enforcement, and on what grounds. The New York Convention is likely to compel recognition and enforcement of the award, unless the dissatisfied party can rely on the public policy exception contained within Article V(2)(b). The way in which the court in question would interpret the public policy exception is, of course, an open question. Although generally seen as a last resort, this ground may be a convenient route for the dissatisfied party to negate entirely the effect of this latest judgment.

So, whilst it is on the one hand encouraging that a party faced with parallel proceedings in breach of an arbitration agreement may be entitled to compensation for its troubles in a private forum, it is not yet clear whether this decision will have the teeth required to ensure that it is effective.

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