The European Justice concludes that arbitration in the United Kingdom cannot block the conviction of the Prestige insurer to repair the damage caused by the oil slick off the Galician coast in 2002. Thus, the EU Court of Justice declared on Monday that The Community Regulation on jurisdiction, the recognition and enforcement of judgments in civil and commercial matters must be interpreted in the sense that a judgment handed down by a court of a Member State – in this case the United Kingdom – in the terms of An arbitral award cannot prevent the recognition, in that Member State, of a resolution issued by a court of another Member State –in this case Spain–.
Thus, the Luxembourg-based court understands that a ruling confirming an arbitration award can only prevent the recognition of judicial decisions of other Member States if the content of said award could also have been the subject of a judicial decision issued in compliance with the dispositions and of the fundamental objectives of the comuniatios regulations. Therefore, the recognition of a decision issued in another Member State cannot be prevented when a court of that first Member State could not have issued a decision with a result equivalent to that of said award without contravening the fundamental provisions and objectives of the Community regulation. , in particular the relative effect of the arbitration clause inserted in an insurance contract and the lis pendens rules.
The Court of Justice of the EU thus ensures, in essence, that these fundamental provisions and objectives of the community regulations cannot be circumvented through an arbitration procedure that is followed by a judicial procedure aimed at transcribing the terms of the arbitration award in a court resolution.
In November 2002, the M/T Prestige, an oil tanker flying the flag of the Bahamas, broke in two during a severe storm and capsized off the Galician coast while carrying 70,000 tons of heavy fuel oil, which spilled and caused significant damage. damage to beaches, towns and cities on the northern coast of Spain and the western coast of France.
Thus began a lengthy legal dispute between the ship’s insurer (The London Steam-Ship Owners’ Mutual Insurance Association Limited) and Spain raised in two different processes in two Member States.
On the one hand, among others harmed by the damage, the Spanish State brought a civil action before the Spanish courts. This action resulted in the London P&I Club being ordered to repair the damage caused up to the limit of 1,000 million United States dollars (USD) (about 900 million euros) stipulated in the insurance contract.
On the other hand, after said civil action had been brought, the London P&I Club initiated an arbitration procedure in London on the basis of a clause in the contract.
This procedure gave rise to an arbitration award in which it was declared that Spain’s compensation claims before the Spanish courts should have been formulated in such arbitration procedure.
In the arbitration award it was also concluded that, according to another clause of the insurance contract (clause pay to be paid), the London P&I Club could not incur liability towards Spain if the shipowners had not previously paid the ship the damages.
As required by the Arbitration Act 1996, the London P&I Club sought and obtained a judgment from the UK High Court of Justice made in terms of the arbitration award. Said sentence was confirmed as a result of the appeal filed against it by Spain.
For its part, Spain asked the British courts to recognize the Spanish resolution ordering the execution of the judicial sentence of the London P&I Club to repair the damage caused. The High Court of Justice in England and Wales granted that request in May 2019.
As a result of the appeal filed by the London P&I Club against such recognition, said Court decided to submit to the Court of Justice of the EU certain questions of interpretation of European Regulation 44/2001.
Essentially, it asked the Court of Justice of the EU if recognition could be denied because there was, in the United Kingdom, a sentence issued in the terms of the award that has irreconcilable effects with those of the aforementioned judicial sentence imposed in Spain.
And what the CJEU has concluded this Monday is that the arbitration filed in the United Kingdom cannot block the recognition of the Spanish ruling that condemns the insurer to repair the damage caused by the oil slick.
The Court of Justice of the EU recalls that the community regulation excludes arbitration from its scope of application. A sentence issued in the terms of an arbitration award is therefore framed in the exclusion of arbitration and cannot enjoy mutual recognition between the Member States.
That said, such a judgment may be considered a decision that prevents the recognition of judicial decisions of other Member States when they are irreconcilable with it. However, something different happens when the arbitration award in terms of which the sentence has been issued was issued, as in the present case, in circumstances in which it would not have been possible to issue, with observance of the fundamental provisions and objectives of this regulation, a judicial resolution included in its scope of application.
As regards the relative effect of the arbitration clause inserted in an insurance contract, the Court of Justice of the EU recalls that an agreement attributing jurisdiction concluded between an insurer and a policyholder cannot bind the person injured by the insured damage who, where permitted by national law, wishes to bring a direct action for criminal or quasi-criminal liability against the insurer before the court of the place where the damaging event occurred or before the court of the place of domicile.
Admit that such a sentence issued in the terms of an award, by which an arbitral tribunal declared itself competent on the basis of such an arbitration clause, may prevent the recognition of a resolution issued in another Member State on a direct action of responsibility that has been exercised the injured party would deprive him of effective compensation for the damage suffered.
As far as lis pendens is concerned, the Court notes that the two proceedings under consideration, namely the civil action proceeding in Spain and the arbitration proceeding in London, not only involved the same parties, but also had the same object and the same cause: the eventual liability of the London P&I Club against the Spanish State, by virtue of the insurance contract signed between the London P&I Club and the owners of the Prestige, for the damage caused by the shipwreck.
The Court of Justice stresses that it is for the court that has been asked to deliver a ruling in terms of an arbitration award to verify compliance with the fundamental provisions and objectives of the Community regulation in order to prevent circumvention of these, such as the one consisting of carrying carry out an arbitration procedure in contravention of the relative effect of the arbitration clause inserted in an insurance contract and the lis pendens rules established in the regulations.