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Using Declaratory Judgments in Favour of Arbitration Agreements

12 January 2012 #Dispute Resolution


Introduction

An arbitration tribunal will have jurisdiction to hear a dispute if there is a valid arbitration agreement between the parties that covers the dispute in question. Most national arbitration laws  recognise that a properly constituted arbitration tribunal has the same authority as a national Court to determine its own jurisdiction. A national Court must therefore be very reluctant to hear an application to decide whether or not there is a valid arbitration agreement between the parties before the arbitration tribunal can consider the issue.

Impact of the West Tankers Decision

The right for an arbitration tribunal to determine its own jurisdiction has become rather confused following the ECJ’s decision in the infamous West Tankers case. Arbitration proceedings are expressly excluded from EU Regulation 44/2001 that sets out the rules for determining jurisdiction that all EU member states apply. On that basis, it would have seemed logical that where a party sought to rely on an arbitration clause, a national court of an EU Member state would be prevented from considering whether there was a valid arbitration agreement until the arbitration tribunal had had the opportunity to decide on its own jurisdiction. However, the ECJ instead decided that it was right for the national court seized of the matter to determine whether it had jurisdiction, including deciding whether or not there was a valid arbitration agreement. The ECJ further held that the Court of one EU member state was prevented from issuing an anti-suit injunction in favour of an arbitration agreement if this injunction interfered with the national court of another member state determining its own decision.

Recent Developments

The issue of conflicting arbitration and court proceedings was considered in the recent case of African Fertilizers and Chemical Nig v BD Shipsnavo. A dispute arose between the parties under a bill of lading for the transport of African Fertilizer’s cargo from Romania to Nigeria by Shipsnavo. The bill of lading incorporated the terms and conditions of an underlying charter-party, which included an English choice of law clause and an agreement for the resolution of disputes by arbitration in London. In breach of the arbitration agreement, African Fertilizers commenced both arbitration and Court proceedings in Romania for a declaration or order of non-liability.

Shipsnavo obtained an injunction restraining the Romanian arbitration proceedings  and an interim declaration from the English Court that the arbitration clause was valid and that the Romanian Court proceedings breached that agreement. Shipsnavo commenced arbitration proceedings in London. The London arbitration tribunal then made a declaratory award that the arbitration agreement was valid and that the London tribunal had jurisdiction to hear the dispute.   

Shipsnavo, being concerned that African Fertilizers might obtain a judgment in its favour in the Romanian Court that it would try to enforce in England, obtained an Order under s.66 Arbitration Act 1996 from the English Court for the recognition and enforcement of the arbitrator’s declaratory award.  Shipsnavo wanted to have this award recognised because EU Regulation 44/2001 prevents recognition and enforcement of a subsequent, inconsistent award and this would prevent African Fertilizers from enforcing any judgment in its favour from the Romanian Court. African Fertilizers appealed the decision to recognise the arbitrator’s declaratory award as a judgment on the basis that recognition of a declaratory judgment was not possible under s.66 EAA 1996 and secondly that a declaratory judgment did not constitute a judgment for the purposes of EU Regulation 44/2001. The appeal was heard by Beatson J who rejected both grounds of appeal.

Conclusions

The Court’s decision on the appeal will come as a relief to the arbitration community since it upholds the arbitrator’s decision on its own jurisdiction in the face of rival court proceedings. The result remains somewhat unsatisfactory in that there remains the possibility for inconsistent judgments since the English Court was unable to prevent African Fertilizers from continuing with the Romanian proceedings.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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