Defenders of Ganado

Wednesday, September 7, 2022, 12:32 p.m.
Last updated: about 48 minutes ago



On 20 June 2022, the Court of Justice of the European Union (Grand Chamber) (the “Court”) declared that a judgment confirming an arbitral award cannot prevent the recognition of a decision of another Member State that whether this sentence could have been the subject of a judicial decision adopted in accordance with the provisions and the fundamental objectives of Regulation 44/2001. Judgment was given in case C-700/20 concerning a request for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union from the High Court of Justice (England & Wales), Queen’s Bench Division (Commercial Court) (United Kingdom) in London Steam-Ship Owners’ Mutual Insurance Association Limited (the “London P&I Club”) v. Kingdom of Spain.

The case concerned the potential liability of the London P&I Club to the Spanish State, under the insurance contract concluded between the London P&I Club and the owners of the Prestige, an oil tanker that sank off the Spanish coast in November 2002, for the significant environmental damage caused to the Spanish and French coasts by the sinking of the ship. This event gave rise to a number of civil actions in Spain, in the context of criminal proceedings, against the master and the owners of the vessel, and against the London P&I Club, the liability insurer of the vessel and its owners, in terms of the Spanish Penal Code which provides for a right of direct action. After the introduction of these civil actions, the London P&I Club commenced arbitration proceedings in the United Kingdom under an arbitration clause included in the insurance contract with the owners of the Prestige.

The UK arbitral tribunal has decided that the claims for damages brought by the Kingdom of Spain in the Spanish courts should have been submitted to arbitration in London and that the “pay to be paid” clause of the contract of insurance had to be complied with, i.e. the insured (the owners of the vessel) must first pay the injured party (the Kingdom of Spain) the compensation due before recovery from the insurer (the London P&I Club) is authorised. The London P&I Club obtained a judgment from the High Court of Justice (England & Wales), Queens Bench Division (Commercial Court) (UK) regarding the arbitration award which was subsequently upheld on appeal.

In the meantime, the procedure in Spain was also progressing and resulted in the captain and the owners of the Prestige and the London P&I Club being held liable for civil claims to over 200 separate parties, including the Spanish state. The defendants were held liable to pay the Spanish State approximately €2.3 billion, while the London P&I Club’s respective liability was contractually limited to $1 billion under the relevant insurance contract. The Kingdom of Spain applied for the recognition of the Spanish enforcement order in the United Kingdom on the basis of Regulation No 44/2001 and the United Kingdom Court of Appeal put several questions to the Court in the form of a request for a preliminary ruling.

The referring court wondered whether a decision given by a court of a Member State in the terms of an arbitration award could be classified as a ‘decision’ within the meaning of Article 34(3) of Regulation No 44/ 2001, which provides that a judgment is not 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. The referring court also wondered whether, under the terms of Article 34(1) of Regulation No 44/2001, which provides that a decision is not recognized if it is manifestly contrary to the public policy of the Member State in which recognition is sought, it is permitted to invoke grounds of public policy to refuse recognition or enforcement of a judgment of another Member State on the basis of res judicata acquired by judgment entered in the terms of an arbitration award.

As a preliminary point, the Court noted that arbitration is excluded from the scope of Regulation No 44/2001 and that, consequently, a judgment rendered under the terms of an arbitration award falls within the scope of this exclusion and cannot benefit from mutual recognition between Member States. Nevertheless, such a decision is considered to be a ‘decision’ within the meaning of Article 34(3) of Regulation No 44/2001 alone and, consequently, is liable to prevent the recognition of a decision given by a court of another Member State if these judgments are irreconcilable.

However, the situation is different when the arbitral award under which this judgment was rendered was rendered in circumstances which would not have permitted the adoption of a judicial decision falling within the scope of Regulation No 44. /2001, in accordance with the basic provisions and objectives of said regulation. Therefore, an arbitral award may, by means of a decision rendered under that award, prevent the recognition of a decision within the meaning of Article 34(3) of Regulation No 44/2001 only if the said arbitral award does not violate the provisions and fundamental objectives of Regulation 44/2001.

The Court concluded that in this case, the arbitral award breached two fundamental rules of Regulation 44/2001. Firstly, the arbitration award did not respect the relative effect of an arbitration clause inserted in an insurance contract, according to which a jurisdiction clause agreed between an insurer and an insured cannot be invoked against ‘an injured party who, where national law permits, wishes to bring an action directly in tort, quasi-tort, before the court of the place where the harmful event occurred or before the court of the place where the victim is domiciled . Second, the arbitral award violated lis pendens, which principle provides that when an action relating to the same cause and between the same parties is brought before the courts of different Member States, any court other than the court first seised shall stay its proceedings until the jurisdiction of the court first seised is established. In the present case, the arbitration proceedings in the United Kingdom were initiated after the proceedings had begun in Spain, and the Court concluded that the two proceedings involved the same parties and the same cause of action, in particular the potential liability of the London P&I Club towards the Spanish State with regard to the insurance contract concerned and the damage caused by the sinking of the Prestige.

Furthermore, the Court determined that the notion of public order within the meaning of Article 34(1) of Regulation No 44/2001 excludes the question of the compatibility of a foreign decision with a national decision. The Court noted that the EU legislature intended to regulate exhaustively the question of res judicata acquired by an earlier judgment through Article 34(3) and (4) of Regulation No 44/2001, which therefore excludes recourse to the public policy exception in this respect.

Emma Cassar Torreggiani is a partner at Ganado Advocates.